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- Title
The New "Reasonable Investor" and Changing Frontiers of Materiality: Increasing Investor Reliance on ESG Disclosures and Implications for Securities Litigation.
- Authors
Saad, Aisha I.; Strauss, Diane
- Abstract
In a typical case, an investor or group of investors allege that a company has made misleading statements, or omitted information, concerning some aspect of a company's ESG performance. In the investment context, the notion that corporations need to take seriously variables other than financial performance has been gaining ground over the past decade, as a growing number of investors have expressed interest in sustainability-related data2 pertaining to companies in their portfolios.3 They have been demanding that companies officially disclose more of their environmental, social, and governance (ESG) risks. In the investors' interest, mandatory reporting on the status of ESG commitments would afford the market (i.e., ratings firms and audit firms) more information regarding the implementation of these commitments into their ratings, therefore allowing for more accurate pricing and assessment of the company. Survey respondents were largely mainstream investors, comprising 43% of global institutional assets under management.71 Amel-Zadeh and Serafeim's findings showed that 82% of investors consider ESG data when making investment decisions.72 They also showed that investors primarily use ESG information for financial, rather than ethical motives, because the information is financially material to investment performance and because clients demand it. At the same time that mainstream investors have demonstrated an appetite for ESG data, a growing subclass of investors, who self-identify as sustainable investors or socially responsible investors (SRIs6), ground their operational mandates in the procurement of ESG performance data and predictive ESG indicators.
- Subjects
ETHICAL investments; FINANCIAL risk; LEGAL education; INVESTORS; CHIEF compliance officers; EFFICIENT market theory; DOW Jones Sustainability Indexes; CONSUMER behavior
- Publication
Berkeley Business Law Journal, 2020, Vol 17, Issue 2, p391
- ISSN
1548-7067
- Publication type
Article
- DOI
10.15779/J29G9D