Mandatory Inequality-Related Corporate Disclosure: The State of Play Across Ten Jurisdictions (September 2024) was released this month. The report was authored by Rights CoLab, together with pro bono divisions of participating law firms under TrustLaw, the global pro bono legal network of the Thomson Reuters Foundation. The report looks at socio-economic inequality-related reporting requirements across 10 Global South and Global North countries: Brazil, China, Mexico, Germany, the United States, South Africa, the UK, Singapore, India and Hong Kong.
Human Level’s Take:
- Growing socioeconomic inequality within countries poses risks not only to vulnerable populations but also to global stability, financial markets and the operating context for business. Regulators and investors need better tools to assess inequality-related risks in corporate value chains.
- A report reviewing 10 countries across the Global North and Global South found that there is rising regulatory interest in inequality disclosures. Both mandatory and voluntary frameworks are looking at issues like horizontal inequality (disparities across groups like gender, race, disability, Indigenous peoples, LGTBQ+ individuals, etc.) through disclosure on topics like workforce and leadership representation. Vertical inequality (income/wealth disparity) is mostly addressed through voluntary pay equity disclosures.
- Other topics, like inequality in supply chains, tax-related disclosures and the informal economy, are key — but requirements are not always consistent across the board, if they even exist. In particular, the informal economy, a major inequality factor, is largely overlooked in laws, highlighting a gap for future regulation.
- While progress is being made, there’s still a lot of room to standardise and strengthen inequality-related disclosures. This is an important signal for companies that there may be increased scrutiny of these topics as regulators begin to leverage disclosure requirements to tackle human rights issues, including through comprehensive approaches like the EU CSDDD. Taking initial steps to identify inequality-related risks across operations and supply chains — and collecting data and metrics on these topics — is an important starting place for companies to prepare.
Some key takeaways:
- Why inequality-related disclosure matters and the path ahead: Growing socioeconomic inequality within countries is a challenge to the stability of our global economy and a burden to economically vulnerable populations. Regulators and investors are positioned to tackle this issue, but they need the tools to identify and manage inequality-related risks in their investment decisions. The Taskforce on Inequality-Related Financial Disclosures (TISFD) was launched to strengthen corporate financial disclosure on inequality and other social issues, especially those involving marginalised people. In order to provide direction for the work of the TISFD, the report draws on research from 10 economies across the Global North and the Global South to identify the presence or absence of corporate disclosure laws and voluntary standards that report on inequality-related information. The research found that, although the scope and topics included in the laws vary across jurisdictions, there is developing “incipient regulatory interest in inequality-related disclosures,” potentially signaling the future direction of travel. Of note, none of the laws refer to “inequality” directly, which suggests an opportunity for more standardisation and coherence between laws that address inequality-related topics. The report also identifies a need for clear metrics, targets, thresholds and guidance to “bring clarity to the market.”
- Which inequality-related topics are covered: The report examines disclosure on two dimensions of inequality, horizontal and vertical. Horizontal inequality refers to disparities between dominant and marginalised groups, like women, Indigenous Peoples, migrants, LGBTQ+ individuals, racial and ethnic minorities, etc. Eight jurisdictions (Brazil, China, Germany, Hong Kong, India, Singapore, the UK, and the U.S.) have requirements for companies to report on horizontal inequalities that show up in workforce representation including leadership; these are usually focused on gender and race or ethnicity. India uniquely also requires disclosure on the number of differently abled employees and the accessibility measures that the company has put in place. In Mexico and South Africa, disclosures on gender and race/ethnicity are voluntary. In every country, there are voluntary disclosures on Indigenous Peoples, migrants, religion, sexual orientation and disability (with the mandatory exception of India on persons with disabilities). Vertical inequality refers to disparities of wealth and income within a population. Pay equity is the only disclosure related to vertical inequality identified in the countries studied. Brazil, Hong Kong, Germany, South Africa and Singapore all have voluntary pay equity disclosures.
- References to other key topics: The research also considered other key topics included within disclosures. For example, the German due diligence law (LkSG), UK Modern Slavery Act and Singapore SGX-ST all require disclosures related to company supply chains, and there are voluntary disclosures covering supply chains in Brazil, Mexico, Hong Kong and the U.S.. The authors anticipate that mandatory due diligence requirements like the EU CSDDD are likely to increase corporate disclosure requirements related to supply chains. In addition, the majority of countries have laws or regulations that cover tax avoidance, which is closely tied to systemic inequalities within countries. The report found that no laws or regulations referred to the informal economy, which is closely linked to inequality given the large number of people (around half) in the informal economy in the Global South. This represents a key opportunity for strengthening disclosure laws. The research also looked at whether disclosure laws refer to the EU’s reporting laws in order to understand their influence on laws in other jurisdictions. The German and UK disclosure laws expressly refer to the EU’s Non-Financial Reporting Directive (NFRD) (replaced by the EU Corporate Sustainability Reporting Directive).
