Washington
- An EPA survey has disclosed that 74 percent of publicly traded US
corporations openly violate the US 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 financial reporting requirements.
While the US Congress was beginning to unravel the Enron Corp.
scandal, none of the investigating subcommittees contacted were aware
of the EPA’s charge of corporate concealment of environmental
liabilities.
Hiding environmental liability from shareholders is a significant
issue. The insurance underwriting industry has estimated the costs of
complying with all environmental cleanups and legal fees as more than
$100 billion.
“This departure from SEC mandated disclosure puts good companies
at a disadvantage,” says Shirin Venus, attorney for the EPA’s Office of
Planning, Policy Analysis and Communications.
In January 2001, the EPA’s Office of Regulatory Enforcement sent
the SEC’s Division of Enforcement notice of the EPA’s campaign to
promote environmental disclosure. It is the SEC’s job to protect
investors and to maintain fair, honest and efficient markets. But in
the last 20 years, the SEC has only enforced its S-K environmental
accounting regulation on one occasion.
Regulation S-K requires all publicly traded companies to report
significant environmental material expenses to shareholders on a
quarterly and annual basis. The required disclosures include:
(Green groups argue that S-K gives corporations too much leeway to interpret what is “financially material.”)
Under current federal securities law, “material” information is
anything that an average investor ought reasonably to be informed of
before buying a security. However, many auditors and their business
clients, define environmental materiality as any event or news that
affects a company’s revenues by a 10 percent threshold level.
The Corporate Sunshine Working Group (CSWG - a coalition of more
than 60 organizations, including the money management firm Kinder
Lydenberg & Domini, the United Steelworkers of America and Friends
of the Earth) is leading an effort to have the SEC hold corporations
accountable for reporting significant environmental expenses.
The CSWG [www.foe.org/international/cswg]
cites a class-action lawsuit filed by shareholders that accused US
Liquids of concealing material environmental information that resulted
in an artificially inflated share price. According to Michelle
Chan-Fishel, international policy analyst for Friends of the Earth
(FOE), investors never knew that “the company was concealing its
illegal dumping activities.” When one of the company’s most important
facilities was heavily fined and temporarily shut down, US Liquid’s
“share value fell by over 50 percent.”
In Pure Profit, a 2000 report by the World Resources
Institute, WRI economists Robert Repetto and Duncan Autin revealed that
many pulp and paper companies were not revealing environmental risks.
The authors warned that this “lack of disclosure infringes SEC rules
and directly threatens investors.”
Corporations often hide their environmental risks from the SEC by
stating that the costs and claims will not have a material adverse
effect on their operations. The accounting firms that continue issuing
clean financial audits for those firms apparently agree with that
stance.
In February 1997, FOE, Sierra Club and Citizen Action wrote to the
SEC to demand an investigation of the entertainment giant Viacom Inc.,
which had failed to report an alleged $300 million in Superfund cleanup
liabilities.
In 1996, Martin Freedman, professor of accounting at the College
of Business and Economics at Towson University in Maryland published a
study of 900 publicly traded parties and concluded that “most companies
make little or no disclosure effort on environmental expense/liability
reporting - and it’s getting more and more overt.”
“The SEC sees a growing problem with a lot of companies just
passing off required generally accepted accounting principles (GAAP) as
immaterial right in front of our faces,” said Bob Burns, chief counsel
in the SEC’s Office of Chief Accountant. “It’s an attitude which comes
across as telling us keeping good books is immaterial, and right now
our primary focus isn’t the environment, but in preparing financial
statements in general,” said Burns.
In 1998, the SEC issued a bulletin calling on companies to abide
more strictly to the environmental disclosure rules but, four years
later, SEC officials were still reluctant to review corporate reporting
failures.
“Part of the problem with the current SEC regulations is they are
just vague enough that corporate council can easily provide
boiler-plate language that eliminates meaningful disclosure of these
issues,” says Sanford Lewis, an attorney with the CSWG.
“The SEC’s non-enforcement of its financial accounting
regulations undermines EPA operations to encourage corporate compliance
with US environmental laws,” says EPA’s Shirin Venus. “Market
mechanisms which require full transparency are undermined by these
departures and it sets a disincentive for others to comply if
competitors aren’t.”
Asked to respond to the EPA’s criticisms, John M. Morrissey, the
SEC’s deputy chief accountant, stated that he was “not in a position to
comment on the EPA study.”
(c)2000 Donald Sutherland. Donald Sutherland is a freelance writer based in Hopkinton, MA.
Yes, Enron Made the List
US - The Multinational Monitor released its annual list of the previous year’s Ten Worst Corporations.
The dishonors go to: Enron, Abbott Laboratories, Bayer, Coca Cola,
ExxonMobil, Philip Morris, Sara Lee, Wal-Mart, Argenbright (the airport
security firm) and Southern Co. (the country’s largest electric
utility). For the complete story on these corporate evildoers, check www.essential.org/monitor.
Pouring Dollars Down a Pipeline
Colombia - The Bush administration wants to help Colombia safeguard the
480-mile Cano Limon oil pipeline by handing over another $98 million to
“train and equip” Colombian troops. Here’s a suggestion. The Cano Limon
pipeline exists primarily to move oil for the LA-based Occidental
Petroleum company: Let Oxy pay to hire the troops to police its
pipeline.
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