Corporate Environmental Performance Reporting to Investors

By Donald Sutherland
November 1996

The Author is an Independent Consultant on corporate environmental performance and a member of the U.S.Technical Advisory Group to ISO14000 (the International Organization on Standardizationīs environmental management standard). → See also:

American publicly traded firms operating with an environmental management system (EMS) and filing environmental performance reports (EPR) to shareholders are setting a new level of corporate transparency of performance for investors.
These companies view environmental stewardship and compliance as integral with overall corporate performance, and are intitiating quality improvement investments to secure a stronger index rating on the stock market.

Most companies listed by Standard and Poors donīt have a formal enviornmental management system and similiarly most firms donīt provide shareholders with an EPR. However, the Securities Exchange Commission does require publicly traded companies to file a 10K form for disclosure of material environmental expenses.
Significant expenses associated with corporate environmental financial risk is thought to be reported in the 10K form, but businesses filing environmental compliance performance with the nationīs environmental laws are creating a discrepancy of disclosure in the stock market.

The issue the SEC is currently reviewing is whether uniform enforcement of full transparency of corporate performance (as required under the Federal Disclosure Laws and the Integrate Disclosure System regulations under the Security Exchange Act of 1933 and the Security Exchange Act of 1934) should require reporting of environmental compliance to the nationīs environmental laws.
Firms such as 3M, Polaroid, Monsanto, Xerox, Baxter and Ford providing investors an EPR reporting release inventory under U.S. Superfund Act (SARA), Clean Water Act, and Clean Air Act are more transparent to investors in disclosing full corporate performance then firms (ie. GE and GM) who donīt provide an EPR.
These toxic inventory release reports are significant indicators of depreciation and volatility values, particularly in light of the 1995 S&P report which sited property/casualty insurance payments for long tail environmental toxic tort claims to exceed $40 billion.

In the early seventies the SEC had proposed to list corporate environmental compliance reports indicating applicable environmental standards and disclosure in a 12 month review period, but the SEC environmental advisory report wasnīt pursued because a uniform accounting model for significant compliance couldnīt be established.
An environmental accounting model has now been developed. On June 26, 1996 the Financial Accounting Standards Board approved the proposal and quidelines drawn up by the American Institute of Certified Public Accountants to have all businesses accure envionmental clean-up liabilities.
Transparency of significant corporate environmental compliance are available to investors through the not-for-profit Investor Responsibility Research Center. The organization provides investors with a Corporate Environmental Profiles Directory on publicly traded companies which incorporates an efficiency and compliance index.

Seizing on this trend, companies operating with an EMS/EPR have initiated a market strategy to incorporate a comprehensive green annual report to include environmental performance and compliance financial figures. They expect product demand to be strengthened with EPRs, and consumer confidence and market share to grow with a green label.

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