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New SEC rules will promote enviro mgmt in public corporations

MessageDear Colleagues Promoting Sustainable Business:

This is a very important announcement related to new USA accounting
standards covering environmental issues.  I believe it could lead to a major
new driver for improving the management of environmental and social issues
within companies, and promoting Pollution Prevention.  It is relevant in any
country with regulations for both public financial reports issued by
publicly-traded companies, AND for environmental liabilities.

The idea if the SEC, described below, of a database reporting to investors
and others about environmental financial liabilities is really interesting.
The database simply includes company records about potential and actual
financial liabilities for environmental problems that could affect their
balance sheet.  Every listed corporation might be REQUIRED to have a record
in the database.  What the heck are most of them going to say?  They have no
idea - yet.

The debate about the content of each company's environmental liabilities
record is going to be huge, because CEOs will panic at having to make such
public disclosures.  For corporations like GE, 3M, United Technologies,
Dupont, etc, this actually will be tremendously difficult because of the
complexity of their production, the toxicities of the waste streams, and
their long history with much poor documentation of disposal.

Whether the information that corporations provide is accurate will always be
a problem.  But meanwhile, this will really stir up interest in better
corporate environmental management at the top level.  For example,
environmental disclosures in a financial statement about known and
significant environmental liabilities could include a description of the EMS
and cleaner production procedures now being implemented to reduce such
liabilities.  I think that, while CEOs will always have trouble with
disclosing potential liabilities, they will always be eager to explain how
they are reducing and preventing them.  This should create new demand for
Pollution Prevention and Cleaner Production services and programs.

This is an interesting complementary idea to privately-developed indexes of
"responsible" corporations, such as the Dow Jones Sustainability Index.
Both the SEC regs and the 13 or so responsibility indexes target the same
audience:  Investors and credit analysts.  Observing the history of the
corporate sustainability movement, this looks like a big wave getting
bigger, a new phase with potentially much larger participation in the
financial sector.

In my medium-size city of Seattle, which is not even a financial center,
there are thousands of investors and credit analysts (keep in mind that
enviro liabilities can and do affect credit risk, so bankers will use the
info if it is available, and there are bankers everywhere).  Sustainability
programs could take a big step forward by holding workshops and press
conferences for these people, to explain briefly how the SEC is going to
start requiring disclosure of environmental liabilities, and ** more
importantly ** how to PREVENT enviro liabilities through "best in class"
policies and programs in the corporations.  Such workshops would be attended
by bank credit analysts, equity investment analysts, and the investment
relations managers of corporations who need to know what the heck to say in
their SEC reports.  For most of them it will be the first time they have
been exposed to the growth of CSR, CP and P2, and EMS  (if you don't know
these, you can take the workshop!).  This is just one example how this SEC
development could really create new dimensions for promoting sustainable

I recall that Mr. Donald Sutherland (not the actor) has been a major
advocate of such actions for years, and has regularly contributed on this
topic to the P2 Tech, APRCP, and ONE-L listservs I read.  Often he has
seemed a bit like a voice crying in the wilderness.  Well this is a great
development, and probably due a lot to Mr Sutherland.  He deserves our
Burton Hamner, Producer, CleanerProduction.Com

 USA: July 20, 2004
Story by David Brinkerhoff


      NEW YORK, July 15 - U.S. financial regulators have agreed to improve
the way they track disclosure of corporate environmental costs, according to
a report by the U.S. Government Accountability Office (GAO).

      In the 74-page report, the GAO recommended and the U.S. Securities and
Exchange Commission (SEC) agreed to creation of a searchable database at its
Web site so investors and analysts can track environmental liabilities like
clean-up costs, fines, and potential risks from pollution and hazardous
      The changes would also help the SEC assess how well it enforces
environmental disclosure and adjust its reporting requirements, said the
GAO, the investigative arm of the U.S. Congress.

      The GAO made the recommendations after finding that the agency, which
regulates the securities markets, does not systematically track
environmental liabilities in company filings.

      "It does not have the information it needs to analyze the frequency of
problems involving environmental disclosure, compared with other types of
disclosure problems," it concluded.

      Environmentalists and some investors say many corporations hide or
downplay clean-up costs, fines, and other environmental liabilities that
shareholders should know about.

      The critics have said hidden liabilities could range from tens to
hundreds of billions of dollars.

      Industrial companies ranging from Dow Chemical Co. (DOW.N: Quote,
Profile, Research) , to Halliburton Co. (HAL.N: Quote, Profile, Research)
have faced billions in liabilities over issues like asbestos exposure and
plant pollution.


      The report also recommended the SEC work more closely with the
Environmental Protection Agency (EPA) to use information that could help
track down environmental liabilities at companies.

      The agency said it also has addressed the problem with earlier
actions, such as posting comment letters on its Web site, a policy scheduled
to begin in August. Comment letters go back and forth between the SEC and
companies addressing revisions and disclosures.

      Democratic Sens. Jon Corzine of New Jersey and Joseph Lieberman of
Connecticut and Independent Sen. James Jeffords of Vermont had requested the
report from the GAO. The senators wanted to determine how effective the
SEC's reporting rules work for environmental costs and to make
recommendations to the agency.

      "Environmental risks and liabilities are among the conditions that, if
undisclosed, could impair the public's ability to make sound investment
decisions," the GAO reported.

      The study - conducted from Feb. 2003 and June 2004 - surveyed 30
experts who use SEC filings, including investors and financial analysts. It
also looked at 15 earlier studies on the extent to which companies report
environmental liabilities in SEC filings.

      HOW CLEAR?

      It found that investors disagree about how clear the SEC's reporting
requirements are when it comes to environmental disclosures.

      Critics claim the SEC's reporting requirements have not been specific
enough, the report said. For example, rules are vague about disclosing
environmental liabilities when their exact cost is uncertain, or when costs
don't need to be paid in the near future. As a result, companies refuse to
add these potential costs to their books, critics charge.

      Companies feel the requirements are adequate and argue that they need
flexibility to fit their circumstances, the report's survey found.


One of the sleeper issues of the decade may be the "environmental
liabilities" that publicly traded companies do or don't disclose to
their stockholders and the public. Some companies' balance sheets
could look radically different with full accounting of things like
potential Superfund cleanup costs. This is not just an academic
issue -- as the lost savings of many people in the recent years'
corporate accounting scandals show. The Government Accountability
Office (GAO) recently did a study that offers a good way for
reporters to start covering these issues. GAO's bottom line about
corporate environmental liabilities: nobody knows how bad they are
-- but the Securities and Exchange Commission should improve
"transparency of information."

Environmental Disclosure: SEC Should Explore Ways to Improve Tracking and
Transparency of Information GAO-04-808, July 14, 2004
Abstract Highlights-PDF PDF


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