Deconstruction and reconstruction of a relationship between the EU precautionary principle and forward-looking information

Abstract:

This paper analyses the possible links between the precautionary principle – as interpreted by the European Commission and the European Court of Justice and broadly employed for health and environmental protection – and the listed companies duties of risk reporting and forward-looking information disclosure.

Taking into consideration that the IAS/IFRS and the European frameworks are already strewn with rules concerning forward-looking information, the paper proposes to apply the precautionary principle to this information, analysing the possible issues arising from the proposal and the related solutions.

Positive effects of a disclosure regime based on the precautionary principle emerge: an increase in transparency in the financial markets, a unique interpretation criterion in the doubtful cases, incentives to careful risk monitoring and timely intervention also in situations of persistent scientific uncertainties and encouragement of effective public and private enforcement.