Environmental Liabilities. (the Front)

By Sutherland, Donald | Multinational Monitor, September 2002 | Go to article overview

Environmental Liabilities. (the Front)


Sutherland, Donald, Multinational Monitor


WHILE THE U.S. CONGRESS tries to unravel the Enron accounting scandal involving hundreds of millions of dollars of debt hidden illegally from shareholders, a U.S. federal agency charges that many publicly traded corporations hide billions of dollars in environmental liabilities.

The U.S. Environmental Protection Agency (EPA) has disclosed that 74 percent of U.S. publicly traded corporations it surveyed violate the U.S. Securities and Exchange Commission's (SEC) environmental financial debt accounting regulations.

The findings are based on a 1998 EPA study of corporate compliance with the SEC's Regulation S-K, mandating that all publicly traded companies provide quarterly and annual financial reporting of significant corporate environmental liability and debt exposure related to violation of U.S. environmental laws.

The hiding of corporate environmental liability from shareholders is a significant issue in the stock market. Corporate exposure to environmental financial costs involving compliance, cleanup and legal fees is estimated by the insurance underwriting industry at over $100 billion.

Officials at the EPA say the high percentage of publicly traded corporations hiding their environmental debt from shareholders and the lack of enforcement by the SEC of its environmental accounting filing regulation is rewarding corporate noncompliance to U.S. environmental laws.

"This departure from SEC-mandated disclosure puts good companies at a disadvantage in the absence of reporting EPA legal proceedings," says Shirin Venus, attorney for the EPA's Office of Planning, Policy, Analysis and Communications. "Enforcement would give assurance that disclosures are being made correctly, and provide incentives for better performance."

In January .200 1, the EPA Office of Planning, Policy Analysis and Communications and Office of Regulatory Enforcement directors sent the SEC's Division of Corporation Finance and Division of Enforcement directors notice of the EPA's national effort to promote environmental SEC disclosure, with references to the agency's 1998 study.

It is the SEC's job to administer and enforce the federal securities laws of the United States in order to protect investors and to maintain fair, honest and efficient markets. But in the last 20 years the SEC has enforced Regulation S-K only once.

SEC Regulation S-K mandates disclosure of:

* all environmental proceedings, including governmental proceedings, which are material to the business or financial condition of the registrant;

* damage actions, or governmental proceedings involving potential fines, capital expenditures or other charges, in which the amount involved exceeds 10 percent of current assets;

* governmental proceedings, unless the registrant reasonably believes such proceedings will result in fines of less than $100,000.

Environmental organizations have criticized these requirements for allowing corporations too much leeway for interpretation of what is financially material when it comes to disclosure of environmental liability and cleanup costs to shareholders.

A coalition of more than 60 organizations is spearheading an effort to have the SEC strictly enforce and improve securities law requiring corporate filing of significant environmental material expenses. The group, called the Corporate Sunshine Working Group, covers the spectrum from money management firm Kinder Lydenberg & Domini to the United Steelworkers of America and Friends of the Earth.

The Corporate Sunshine Working Group argues that the non-disclosure of environmental liabilities and cleanup costs by publicly traded companies makes a real difference in companies' share price - and is thus necessary to protect shareholders, not just the environment. They cite a class action lawsuit filed by shareholders of U.S. Liquids against the firm for concealing material environmental information that resulted in an artificially inflated share price. …

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