GAO-04-1019R Environmental Disclosure Briefing 

United States Government Accountability Office

Washington, DC 20548 

August 4, 2004 

The Honorable Jon S. Corzine 

United States Senate 

Subject: Environmental Disclosure: Briefing on GAO’s Findings and 

Recommendations

Dear Senator Corzine: 

The Securities and Exchange Commission’s (SEC) primary mission is to protect 

investors and the integrity of securities markets. Among other things, SEC 

regulations require companies to file reports with SEC disclosing information that 

would be considered “material” to a reasonable investor. A matter is material if there 

is a substantial likelihood that a reasonable person would consider it important. 

Environmental risks and liabilities are among the conditions that, if undisclosed, 

could impair the public’s ability to make sound investment decisions. For example, 

the discovery of extensive hazardous waste contamination at company-owned 

facilities could expose a company to hundreds of millions of dollars in cleanup costs, 

while impending environmental regulations could affect a company’s future financial 

position if the company were required to shut down plants or invest in expensive new 

technology. To monitor companies’ disclosures, SEC reviews their filings and issues 

comment letters requesting revisions or additional information, if needed. Although 

the Environmental Protection Agency (EPA) does not have a direct role in monitoring 

environmental disclosures, the agency notifies companies of potential disclosure 

obligations and periodically shares relevant information with SEC. 

This letter formally transmits to you the slides we used to provide a briefing on issues 

related to the disclosure of environmental information in SEC filings at a symposium 

on July 15, 2004, sponsored by you; Senators Lautenberg, Lieberman, McCain, and 

Nelson; and Representatives Blumenauer, Doggett, Markey, Michaud, Olver, Pallone, 

Payne, and Solis. (See enclosure I.) The briefing was based on our recent report, 

Environmental Disclosure: SEC Should Explore Ways to Improve Tracking and 

Transparency of Information (GAO-04-808, July 14, 2004). The report addresses 

(1) key stakeholders’ views on how well SEC has defined the requirements for 

environmental disclosure, (2) the extent to which companies are disclosing such 

information in their SEC filings, (3) the adequacy of SEC’s efforts to monitor and 

enforce compliance with the disclosure requirements, and (4) experts’ suggestions 

for increasing and improving environmental disclosure. Our review of these issues 

was conducted in accordance with generally accepted government auditing 

standards. 
 Page 2 GAO-04-1019R Environmental Disclosure Briefing 

- - - - - 

We are sending copies of this letter to the Chairman of SEC; the Administrator, EPA; 

and to other interested parties. The letter will also be available at no charge on 

GAO’s Web site at http://www.gao.gov. 

Please call me at (202) 512-3841 if you or your staff have any questions. Major 

contributors are listed in enclosure II. 

Sincerely yours, 

John B. Stephenson 

Director, Natural Resources 

 and Environment 

Enclosures - 2 
 Page 3 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Environmental Disclosure: 

SEC Should Explore Ways to Improve 

the Tracking and Transparency of 

Information

Statement of John B. Stephenson

Director, Natural Resources and Environment

July 15, 2004
 Page 4 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Research Objectives

Determine:

• Stakeholders’ views on how well SEC has defined the 

disclosure requirements

• Extent of environmental disclosure

• Adequacy of SEC’s monitoring and enforcement

• Experts’ suggestions for improving environmental disclosure 
 Page 5 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Obj. 1: Stakeholders’ Views on How Well 

SEC Has Defined the Requirements

What we did:

• Reviewed SEC’s disclosure regulations along with relevant 

standards and guidance from SEC, FASB, and AICPA

• Interviewed key stakeholders including both users and 

preparers of the information in SEC filings
 Page 6 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Stakeholders Consulted by GAO

• AIG Environmental

• American Bar Association

• American Chemistry Council

• Business Roundtable

• Coalition for Environmentally 

Responsible Economies

• Domini Social Investments

• Edison Electric Institute

• Financial Accounting Standards 

Board

• Financial Reporting Advisors 

LLC

• Friends of the Earth

• Guida, Slavich & Flores, P.C

• Morningstar, Inc.

• Pricewaterhouse Coopers LLP

• Social Investment Forum 

• The Brattle Group, Inc.

• The Calvert Group

• The Good Neighbor Project for 

Sustainable Industries

• The Rose Foundation

• University of Illinois School of 

Law

• World Business Council for 

Sustainable Development

• World Resources Institute
 Page 7 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Obj. 1: Stakeholders’ Views on How Well 

SEC Has Defined the Requirements

What we found: 

Disagreement about flexibility and scope of requirements for 

SEC filings. 

• Some users believe the existing requirements are too flexible 

and too narrowly scoped

• Some preparers and other stakeholders believe the opposite
 Page 8 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Obj. 2: Extent of Environmental 

Disclosure

What we did:

• Identified and analyzed 27 recently completed studies on 

environmental disclosure

• Examined disclosures related to impacts of potential controls 

on greenhouse gas emissions at selected electric utilities
 Page 9 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Obj. 2: Extent of Environmental 

Disclosure

Findings: 

• In general, studying the extent of disclosure is very difficult.

• Despite strong limitations, studies provide tentative insights 

about the amount of disclosure but not its adequacy.

• Disclosures by electric utilities varied widely and did not 

include estimates of potential cost impacts.
 Page 10 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Electric Utility Disclosures Related to 

Potential Greenhouse Gas Controls

Other current or 16 4

proposed controls

Current policy on 9 11

voluntary reductions

Kyoto Protocol 14 6

Number of companies 

with no disclosures

Number of companies 

making disclosures

Category of potential 

impacts
 Page 11 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Obj. 3: Adequacy of SEC’s Monitoring 

and Enforcement

What we did:

• Reviewed procedures, studies, and statistics

• Met with SEC’s Division of Corporation Finance and Division 

of Enforcement 

• Met with EPA’s Office of Enforcement and Compliance 

Assurance
 Page 12 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Obj. 3: Adequacy of SEC’s Monitoring 

and Enforcement

What we found:

• SEC does not systematically track the nature of comments 

on filings

• SEC does not have a public database of comment letters and 

responses

• SEC and EPA have made efforts to coordinate, but 

information sharing is limited
 Page 13 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

SEC’s Reviews of Companies’ Annual 

10-K Filings

Percent 17.4 8.1 16.4 19.9 16.9

reviewed 

by SEC

Number 2,345 1,160 2,305 2,695 2,170

reviewed 

by SEC

Annual 13,460 14,280 14,060 13,550 12,830

filings

1999 2000 2001 2002 2003
 Page 14 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Obj. 4: Experts’ Suggestions for 

Improving Environmental Disclosure

What we did:

• Conducted a Web-based survey of 30 experts that use the 

filings

• Obtained perspectives of businesses that would be affected 

by the suggestions
 Page 15 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Affiliations of Experts Who Provided 

Views on Improving Disclosure

• GovernanceMetrix

International, Inc.

• World Resources Institute

• Harvard Business School

• Friends of the Earth

• R.G. Associates, Inc.

• PricewaterhouseCoopers 

LLP

• Vanderbilt University

• Investor Responsibility 

Research Center

• LeBeouf, Lamb, Greene, 

and MacRae, LLP

• Towson University

• Calvert Funds

• National Academy of Public 

Administration

• Office of Connecticut State 

Treasurer

• The Brattle Group

• Western Michigan University
 Page 16 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Affiliations of Experts Who Provided 

Views on Improving Disclosure

• Office of Attorney General, 

State of New York

• The Rose Foundation

• Domini Social Investments 

LLC

• Sidley Austin Brown & 

Wood

• Illinois State University

• AIG Environmental

• Stratus Consulting, Inc.

• Financial Reporting 

Advisors LLC

• Guida, Slavich & Flores, 

P.C.

• Standard & Poor’s

• Ernst & Young

• Sonoma State University

• Pillsbury Winthrop LLP

• Innovest Strategic Value 

Advisors, Inc.

• University of Illinois College 

of Law
 Page 17 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Obj. 4: Experts’ Suggestions for 

Improving Environmental Disclosure

What we found:

• Experts suggested: 

• modifying the requirements and guidance, 

• increasing SEC oversight, 

• pursuing nonregulatory initiatives

• Some experts commented that certain suggestions are 

unnecessary or unworkable

• Reporting companies said some suggestions would not 

improve disclosure
 Page 18 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Key Conclusions

• Without more compelling evidence that environmental 

disclosure is inadequate, the need for changes to 

existing requirements or guidance or increased 

monitoring and enforcement is unclear.

• SEC should ensure that it has the information it needs 

to allocate its oversight resources and determine where 

additional guidance might be warranted. 
 Page 19 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure I 

Recommendations

We recommend that SEC

• Track key information from its reviews of company filings to facilitate analysis

• Explore the creation of a publicly accessible database of comment letters and company responses.

SEC is taking steps toward implementing these 

recommendations.

We also recommend improved coordination between SEC and 

EPA on environmental disclosure.
 Page 20 GAO-04-1019R Environmental Disclosure Briefing 

Enclosure II 

GAO Contacts and Staff Acknowledgments 

GAO Contacts John B. Stephenson, (202) 512-3841 

 Ellen Crocker, (617) 788-0580 

Staff Acknowledgments In addition to the individuals named above, 

 Kate Bittinger, Mark Braza, Stephen Cleary, 

 Evan Gilman, Kevin Jackson, Rich Johnson, 

 Les Mahagan, Tom Melito, Lynn Musser, 

 Cynthia Norris, and Judy Pagano made key 

 contributions to this report. 

(360506) 
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