A behavioural law and economics approach to sustainability information

Abstract

Mandatory disclosure is a traditional tool of corporate governance and securities regulation. The growing field of sustainable finance regulation has taken up the issue of corporate sustainability reporting. With respect to sustainable corporate governance, the shift from a shareholder centric approach to a stakeholder approach is underway. Moreover, behavioural corporate governance focuses on disclosure as a tool to trigger particular reactions in investors and companies. With respect to securities regulation, the efficient capital markets hypothesis has been challenged by behaviourists who have studied deviations from perfectly rational behaviour. Although behavioural findings are not new, lawmakers and courts have continued to rely extensively on disclosure obligations to promote efficient markets. This recurring theme of capital markets law deserves renewed attention given the extent to which the growing area of sustainable finance regulation has laid emphasis on sustainability disclosure. This article seeks to assess the implications of behavioural economics concerning the law and regulation of sustainability information in the capital markets.