What are big companies not telling you now?

Risks to human rights, health, and the environment – from Sudan to suntan lotion – should be part of required disclosure.

What do human rights abuses associated with oil drilling in Sudan, the nanotechnology used in your suntan lotion, and growing concerns about climate-related water shortages in the southwestern United States have in common?

These are all examples of specific risks the US Securities and Exchange Commission (SEC) does not require publicly traded companies to disclose – not even to shareholders and potential investors.

This lack of disclosure is not a question of some missing technical paperwork. Rather, it stems from the absence of rules and explicit guidance from the SEC and reluctance by companies to make this information available voluntarily.

The global economic crisis makes it painfully apparent that our system for corporate reporting is not working for shareholders. Some observers say that robust sustainability reporting might have mitigated some of the impacts of the financial crisis.

The extent to which investors are provided with a clearer picture of all types of risks – including those categorized as environmental, social, and governance factors (ESG) – is key to efficient markets. In fact, it can determine if markets run smoothly or falter spectacularly.

The good news is that the SEC, under new leadership, is sending signals that it is open to considering better disclosure. The first meeting of the SEC Investor Advisory Committee even included discussion on whether more disclosure is needed, particularly in the areas of environment and climate change. While this is an important step, climate risks are just one of many threats to a company's sustainability.

Disclosures would promote longer-term thinking by investors and corporations, making it possible to detect destructive business practices such as predatory lending, which affects us all. Consider how potential investors would benefit from being informed of the following three things:

Human rights issues

Today, companies in the oil, gas, and mining industries face a wide range of human rights challenges that disrupt their day-to-day operations, diminish their prospects for growth, and threaten their general license to operate in many places around the world.

These issues include the displacement and relocation of communities; the use of security forces in protecting company personnel and assets; and conducting operations in countries with endemic human rights abuses, such as Sudan.

Potential liabilities also extend to consumer products companies and retailers grappling with the use of child and forced labor and other so-called sweatshop abuses in their supply chains.

Emerging technologies

A recent report from the Investor Environmental Health Network notes that nanotechnologies are being deployed in a wide array of consumer products, from cosmetics (including suntan lotions) to sporting goods, despite preliminary evidence that some nanoparticles have toxic properties.

Some nanomaterials have already been found to cause mesothelioma in laboratory animals, yet producers and users of these technologies have said little to nothing to investors on potential liabilities.

The report finds disturbing parallels between nanotechnology today and the early years of the asbestos industry, where the failure to disclose health problems led to widespread corporate bankruptcies and colossal losses for investors.


The world's freshwater resources are in crisis due to growing population demands, overuse of nonrenewing aquifers, pollution, and climate change.

Long-term water shortages have reduced agricultural production in the breadbaskets of India, Australia, China, and the United States, while seasonal water scarcity has constrained power plant operations in Europe and the southeastern United States.

By the middle of this century, the areas of the world facing water stress may double, according to the Intergovernmental Panel on Climate Change. Water risk is now widely acknowledged in the business community, but is rarely discussed in financial filings.

These risks and corporate responses to them hold implications far beyond the market's boundaries. To address these disclosure deficiencies, the SEC should require publicly traded companies to report annually on a uniform set of ESG indicators modeled on the Global Reporting Initiative's framework, as well as on any other short and long-term sustainability-related risks, to investors.

Information about potential ESG risks should appear alongside other financial data and analysis companies routinely disclose in existing annual reports and SEC filings. The number of companies producing annual sustainability reports is on the rise, but this type of reporting is still not the norm. Without explicit guidance, companies are reporting on different indicators and presenting information in inconsistent ways, making it difficult for analysts to compare data and performance.

This process should not be expensive or onerous. Companies often have this information on hand but are reluctant to disclose it. Still, others ignore serious issues that could turn into liabilities if left unchecked.

By not measuring progress or regularly assessing risks and strategies for mitigating them, companies are doing themselves and their shareholders a disservice.

The bottom line is that critical information is missing for shareholders. Disclosing potential risks would allow more informed choices about investments for individual investors as well as billion-dollar asset managers.

Lisa Woll is CEO of the Social Investment Forum.

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