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GENERAL SECTION
GAO: SEC Should Improve “Tracking and Transparency” of Environmental Disclosures
JULY 15, 2004 GAO REPORT
On July 15, the General Accounting Office issued a report entitled Environmental Disclosure: SEC Should Explore Ways to Improve Tracking and Transparency of Information. Among the highlights of the GAO report, they concluded:
- Little is known about the extent to which public companies are disclosing environmental liabilities because the underlying information is generally not otherwise available to the SEC;
- The adequacy of SEC’s efforts to monitor and enforce compliance with environmental disclosure requirements cannot be determined because the necessary records are not being kept;
- GAO should make their comment letters and companies’ responses more accessible to the public; and
- GAO and EPA should better share information.
OPINIONS VARY
Key stakeholders vary in their opinion of the adequacy of current SEC regulations and enforcement. Some users said the existing requirements allow too much flexibility, making it too easy for public companies to conclude they have nothing to disclose. These stakeholders expressed concerns that:
- SEC’s definition of monetary sanctions does not include certain costs such as costs associated with environmental remediation and supplemental environmental projects undertaken in lieu of sanctions;
- Companies are not required to aggregate the costs of similar liabilities such as liabilities for environmental remediation in assessing the materiality of these liabilities; and
- Neither are companies required to report the total number of sites at which they are a potentially responsible party, or to provide other information to allow a potential investor to assess the adequacy of their reserves.
However, reporting companies and financial analysts said the scope of the existing requirements is adequate and that flexibility is needed in applying the regulations to the circumstances of each company. They also point out that:
- Companies typically disclose non-financial environmental information, in a variety of other public documents (press releases, environmental reports, etc.) and that including the information in their SEC filing is unnecessary and inappropriate;
- Environmental regulations and market forces rather than SEC regulations are the drivers behind a company’s environmental performance; and
- Requiring companies to aggregate similar types of environmental liabilities would compound the uncertainties associated with each exposure and could distort the actual risks a company faces.
SEC AND EPA AGREE
The SEC and EPA both have expressed their general agreement with the GAO’s recommendations and the SEC is creating a new Office of Disclosure Standards responsible for ensuring the quality and consistency of their review of corporate filings. While it is not yet clear how this will effect future disclosures, it is clear that stakeholder interest in this issue continues to grow.
This is one of a continuing series of articles on managing environmental liabilities in the aftermath of Sarbanes-Oxley. For more information, please feel free to contact John Payne, Connie Haglage or Dave Strayer at 513.489.2255 or 800.229.1443 or by email to jlp@paynefirm.com, cgh@paynefirm.com, or dcs@paynefirm.com. Please also visit our website at http://www.paynefirm.com/html/SarbanesOxleyIntro.html.
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