This past spring, I was fortunate to attend Dr. Robert Shiller’s Financial Markets course at Yale University. Dr. Shiller was awarded the Nobel Memorial Prize in Economic Sciences in 2013; he is well-known in economics and finance circles for the Case-Shiller Home Price Index and his extensive work on behavioral finance.

The course title and the professor’s fame led me to believe that I was walking into a traditional finance course with a possible emphasis on real estate and behavioral finance. After many years in finance, I was unsure that I would gain anything but a badge of honor for having learned under a Nobel Prize winner and reminisce years later when I tell my children and grandchildren about it. But what I left with was so much more than I had hoped for.

The course is designed to help young minds get a hold of the vast and complex world of finance, and it achieves that seamlessly. The impact a figure like Dr. Shiller can have on the minds of the future leaders in business and society should not go unnoticed. In his book Finance and the Good Society, Dr. Shiller argues that the goals of society originate within us, that finance is a “functional” science in that it exists to support those goals, and that government is supposed to set the rules of the game that allow for those values and well-functioning markets to flourish.

I believe that social consciousness has changed materially in the past decade to express new values, including gender and race equality, decarbonization and labor standards, to name a few. We can see signs of this change in company mission statements, customer preferences and employee decisions. More recently, the Business Roundtable, a group representing the CEOs of the United States’ leading companies, released a Statement on the Purpose of a Corporation that tries to redefine the role of companies from shareholder-focused to stakeholder-focused. However, we still have not seen an equivalent shift in regulation to support those goals; regulation is supposed to change when times change.

Given the central role that companies have in society today, the way they report needs to be updated. Material information is a fundamental principle that touches on regulatory and accounting issues. Federal regulation requires public-listed companies to disclose any information that is necessary to form an understanding of the company’s financial condition, operating performance and prospects for the future. The Financial Accounting Standards Board (FASB), recognized by the SEC in 1973, defines what the generally accepted accounting principles (GAAP) are in the United States. Their understanding of materiality is that it should not be used as a rule of thumb or be solely focused on financial thresholds. In Staff Accounting Bulletin No. 99, it stated that companies should perform “a full analysis of all relevant considerations,” including quantitative and qualitative factors. Even though FASB maintains this description for what is material, its standards are lacking in a world where climate change and gender equality movements can materially impact the value of brands and companies.

A complement to FASB standards is the Sustainability Accounting Standards Board (SASB) standards. However, the SEC still does not recognize these standards, and without a standard, the market cannot adopt them. I believe that through the implementation of SASB reporting and improved regulation around disclosure, investors could make better-informed “apples-to-apples” comparisons of two companies based on their material non-financial data in the same way that GAAP standardized financial accounting across sectors. I also believe the long-term effects of poor performance on these non-financial metrics should equate to negative market performance for corporations.

Unfortunately, in the current market environment, many of these negative externalities go unmeasured or unnoticed and society pays the bill rather than the perpetrator. Building regulations around a framework that will hold companies accountable for the damages they inflict and rewarding those that contribute to a more equitable and sustainable society, I believe would allow investors to synthesize a comprehensive picture of an individual brand or company’s current state. This could result in the market more efficiently reflecting and pricing the impact of current events and business practices. Taken a step further, one could guess that this enhanced transparency would effectively limit short-term thinking from boards and CEOs. I believe that the catalysts for driving change in the space will be advocacy and data. We need advocacy at the government and market-level to spread the importance of mandating standardized non-financial disclosures and the compounding positive impact of doing so.

At the same time, technology must be used to find ways to organically find and generate this data in a fair way that minimizes self-reporting biases and infrequent data reporting. Together, the two make a powerful case for the gradual introduction of non-financial standards into the market. However, laws and regulations are meant to be fair and the current dynamism in cultural and societal values make implementing regulatory change a difficult task. For example, SASB lists employee engagement, diversity and inclusion as a general issue category; there is variance in the degree to which people (e.g., shareholders, employees and citizens) believe a corporation should act on those issues and it will be immensely difficult to define what the high-water mark for performance on that category is global, let alone across sectors.

However, initial and consistent engagement with regulators will help begin pushing corporate entities in the right direction. Academics armed with empirical data and case studies can also influence regulation and help create a competitive arena around these material non-financial metrics. Only then will we see the financial markets catalyze real change for the society in which its participants operate. The most important lesson I have learned is that by using finance as a tool to support our values that we can, in the words of Dr. Shiller, “maintain our humanity in an unforgiving business world.”

Originally found in Forbes.