Securities and Exchange Commission New Rules for Dirty Businesses?

A new report by the US government's General Accountability Office (GAO) wants the Securities and Exchange Commission (SEC) to improve the way it gets companies accounting for their environmental liabilities, including project closure costs. It's yet another fall-out from the Enron debacle of 2001and the huge recent increase in asbestos-related law suits. Companies have generally welcomed the new procedures but critics point to loopholes which will enable bad business to continue as usual. Meanwhile no other country's stock exchange or financial accounting watchdog has got even close to the mild measures proposed by GAO.

Securities and Exchange Commission New Rules for Dirty Businesses?

PlanetArk (Reuters)

July 15 2004

New York, - 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 materials.

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.to Halliburton Co. have faced billions in liabilities over issues like asbestos exposure and plant pollution.

Work with EPA

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 to 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.

Story by David Brinkerhoff