No Way of Knowing
During their research for the GAO’s July report on the state of corporate environmental disclosure, agency staffers examined 27 studies released since 1998 and seriously considered the findings of 15. Perhaps most startling was a 1998 EPA report, which revealed that 75 percent of publicly traded companies that had incurred environmental fines of $100,000 or more failed to properly disclose them. Omitting such fines from SEC filings is a violation of one of the few bright-line materiality guidelines provided by the commission.
In this year’s report, the GAO concluded that the low level of many corporate disclosures was inadequate to determine if the disclosures were, in fact, adequate. A low level of disclosure, noted the agency, could mean one of three things: that a company has no environmental liabilities, that the costs are immaterial, or that the company is hiding information from investors.
The GAO proposed that the SEC create a searchable database of comment letters and company responses (a Website was launched in August); that SEC and EPA staffers work more closely, for example, by matching up EPA data on site-specific violations with the SEC database of parent companies; and that the SEC replace its current paper-based system of company-review memos with an electronic system.
Not groundbreaking proposals — and moving no faster, it seems, than a glacial pace. Indeed, notes the Rose Foundation’s Little, the SEC staff has its hands full with Sarbanes-Oxley enforcement, so the commission has yet to establish a timetable for assessing the foundation’s own proposal that it adopt the ASTM standards — although “they are receptive to hearing comments.” Another drag on the process, says McGladrey & Pullen’s Hanson, is that new Sarbanes burdens have sent corporations “hunting for experienced accounting talent,” so even though the SEC has the budget to hire more accountants, the market is dry.
Nonetheless, says Cogan at the Investor Responsibility Research Council, the stage seems set for SRIs and general investors to turn up the pressure on corporations to disclose their pollution liabilities in greater detail. For both types of investors, he asserts, a robust disclosure policy related to environmental liabilities “is a proxy for good management.”