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21 Lewis & Clark L. Rev. 317 (2017)
Comply or Explain and the Future of Nonfinancial Reporting

handle is hein.journals/lewclr21 and id is 341 raw text is: COMPLY OR EXPLAIN AND THE FUTURE OF NONFINANCIAL REPORTING by Virginia Harper Ho* Although investor demand for material environmental, social, and gov- ernance (ESG) information that can be readily used in financial analy- sis continues to grow, many firms and their advisors have concerns about the potential costs and benefits of new disclosure mandates. This Article argues that a comply-or-explain approach to ESG reporting could be a more effective alternative to new line-item mandates on the one hand, and reliance on voluntary ESG reporting on the other. This Article first surveys empirical research across many of the jurisdic- tions that have implemented a comply-or-explain approach and finds that comply-or-explain principles have proven effective in improving cor- porate governance practices and enhancing corporate transparency, par- ticularly in the markets that most resemble the United States. It then draws on this comparative experience to propose principles that could guide the Securities and Exchange Commission in incorporating a com- ply-or-explain approach to ESG reporting within the current U.S. finan- cial reporting framework. It concludes by suggesting specific elements that could be incorporated in new ESG disclosure standards on a comply-or- explain basis. I. INTRODUCTION................................................. 318 II. ESG REPORTING: AN OVERVIEW ................................3 21 A. Mandatory Reporting ........................... ..... 323 B. Voluntary Reporting ....................................... 326 C. The Limits ofESG Reporting & Global Responses........... 327 III. COMPLY OR EXPLAIN: AN ASSESSMENT ........................ 329 A. Explaining Comply or Explain ............................ 329 B. Assessing the Impact: A Comparative Perspective... ......... 331 1. The United States................................ 334 2. Anglo-European Markets............ ............... 335 3. Emerging Markets............................... 339 Professor, University of Kansas School of Law. This Article benefitted immensely from the insights of the Symposium attendees and presenters. 317