a

GAO

United States Government Accountability Office

Report to Congressional Requesters

July 2004 ENVIRONMENTAL 

DISCLOSURE

SEC Should Explore 

Ways to Improve 

Tracking and 

Transparency of 

Information

GAO-04-808
www.gao.gov/cgi-bin/getrpt?GAO-04-808.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact John B. 

Stephenson at (202) 512-3841 or 

stephensonj@gao.gov. 

Highlights of GAO-04-808, a report to 

congressional requesters 

July 2004

ENVIRONMENTAL DISCLOSURE

SEC Should Explore Ways to Improve 

Tracking and Transparency of 

Information 

Key stakeholders disagree about how well SEC has defined the disclosure 

requirements for environmental information. Some stakeholders who use 

companies’ filings, such as investor organizations and researchers, 

maintained that the requirements allow too much flexibility and are too 

narrow in scope to capture important environmental information. Other 

stakeholders, primarily those who prepare or file reports with SEC, said that 

the scope of the current requirements and guidance is adequate and that 

companies need flexibility to accommodate their individual circumstances. 

Little is known about the extent to which companies are disclosing 

environmental information in their filings with SEC. Determining what 

companies should be disclosing is extremely challenging without access to 

company records, considering the flexibility in the disclosure requirements. 

Despite strong methodological limitations, some studies provide tentative 

insights about the amount of environmental information companies are 

disclosing and the variation in disclosure among companies. However, the 

problem in evaluating the adequacy of disclosure is that one cannot 

determine whether a low level of disclosure means that a company does not 

have existing or potential environmental liabilities, has determined that such 

liabilities are not material, or is not adequately complying with disclosure 

requirements. 

The adequacy of SEC’s efforts to monitor and enforce compliance with 

environmental disclosure requirements cannot be determined without better 

information on the extent of environmental disclosure. In addition, SEC does 

not systematically track the issues raised in its reviews of companies’ filings 

and thus, does not have the information it needs to analyze the frequency of 

problems involving environmental disclosure, compared with other types of 

disclosure problems; identify trends over time or within particular 

industries; or identify areas in which additional guidance may be warranted. 

Over the years, SEC and EPA have made sporadic efforts to coordinate on 

improving environmental disclosure; currently, EPA periodically shares 

limited information on specific, environment-related legal proceedings, such 

as those involving monetary sanctions. 

Using a Web-based survey of 30 experts that use disclosure information, 

including investor organizations and financial analysts among others, GAO 

obtained suggestions for increasing and improving environmental disclosure 

in three broad categories: modifying disclosure requirements and guidance, 

increasing oversight and enforcement, and adopting nonregulatory 

approaches to improving disclosure. Some of the experts offered comments 

about why particular proposals are unnecessary or unworkable. GAO also 

sought the views of representatives of companies that file reports with SEC, 

who questioned the value and feasibility of some suggestions.

To help investors make informed 

decisions, the Securities and 

Exchange Commission (SEC) 

enforces federal securities laws 

requiring companies to disclose all 

information that would be 

considered important or “material” 

to a reasonable investor, including 

information on environmental risks 

and liabilities, in reports filed with 

SEC. To monitor companies’ 

disclosures, SEC reviews their 

filings and issues comment letters 

requesting revisions or additional 

information, if needed. This 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 disclosure requirements, and 

(4) experts’ suggestions for 

increasing and improving 

environmental disclosure. 

GAO is recommending that SEC 

take steps to improve the tracking 

and transparency of information 

related to its reviews of companies’ 

filings, and to work with the 

Environmental Protection Agency 

(EPA) to explore ways to take 

better advantage of EPA data 

relevant to environmental 

disclosure. SEC agrees with GAO’s 

recommendations and is taking 

action by, for example, making 

comment letters and company 

responses available on its Web site, 

beginning with August 2004 filings. 
Page i GAO-04-808 Environmental Disclosure

Contents

Letter 1

Results in Brief 3

Background 6

Stakeholders Disagree on How Well SEC Has Defined 

Environmental Disclosure Requirements 9

Little Is Known about the Extent to Which Companies Are 

Disclosing Environmental Information in SEC Filings 16

Adequacy of SEC’s Efforts to Monitor and Enforce Compliance with 

Environmental Disclosure Requirements Cannot Be 

Determined 23

Experts Suggest Changes to Requirements and Guidance, Increased 

Oversight, and Nonregulatory Actions to Increase and Improve 

Environmental Disclosure 29

Conclusions 36

Recommendations for Executive Action 36

Agency Comments 37

Appendixes

Appendix I: Scope and Methodology 39

Appendix II: Principal Requirements and Guidance Applicable to the 

Disclosure of Environmental Information in SEC Filings 44

Appendix III: Summary of Disclosure Studies Included in Our Analysis 46

Appendix IV: Experts Who Participated in GAO Survey 51

Appendix V: Survey Questions and Results 52

Appendix VI: Comments from the Securities and Exchange Commission 72

Appendix VII: GAO Contacts and Staff Acknowledgments 74

GAO Contacts 74

Staff Acknowledgments 74

Tables Table 1: Disclosures Related to Potential Impacts of Current or 

Proposed Requirements to Reduce Greenhouse Gas 

Emissions 22

Table 2: SEC’s Reviews of Companies’ Annual 10-K Filings, Fiscal 

Years 1999 through 2003 25
Contents

Page ii GAO-04-808 Environmental Disclosure

Abbreviations

AICPA American Institute of Certified Public Accountants

EPA Environmental Protection Agency

GAO Government Accountability Office

SEC Securities and Exchange Commission

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Page 1 GAO-04-808 Environmental Disclosure

United States Government Accountability Office

Washington, D.C. 20548

A

July 14, 2004 Letr

The Honorable James M. Jeffords

Ranking Minority Member

Committee on Environment and Public Works

United States Senate

The Honorable Jon S. Corzine

United States Senate

The Honorable Joseph I. Lieberman

United States Senate

Recent scandals in the business world have shaken investors’ confidence in 

corporate financial reporting and the underlying accounting and auditing 

practices, and have highlighted the importance of disclosing key 

information to potential investors. 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. While not the primary impetus, 

concern about environmental liabilities has also contributed to the growth 

of “socially responsible” investor groups and mutual funds that invest only 

in companies with a strong record in environmental compliance, worker 

protection, and other social issues. Congress passed the Sarbanes-Oxley 

Act of 2002 to protect investors by improving the accuracy and reliability of 

corporate disclosures, which could lead to improved reporting of 

environmental liabilities. 

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 disclose information that 

would be considered “material” by a reasonable investor. A matter is 

material if there is a substantial likelihood that a reasonable person would 

consider it important. The omission or misstatement of an item in a 

financial report is material if, in light of surrounding circumstances, the 

magnitude of the item is such that the judgment of a reasonable person 

would probably have been changed or influenced by the inclusion or 

correction of the item. Information that might be considered material can 
Page 2 GAO-04-808 Environmental Disclosure

include, for example, significant changes in accounting practices or 

potential risks or liabilities, such as the cost of a major environmental 

cleanup, that could affect future earnings. SEC’s Division of Corporation 

Finance monitors compliance with the disclosure requirements by 

periodically reviewing companies’ filings and issuing comment letters to 

the companies, if necessary, to request any additional information that 

might be required. In addition, SEC’s Division of Enforcement may seek a 

monetary penalty or take some other enforcement action when a 

company’s failure to comply with disclosure requirements is particularly 

egregious. While the Environmental Protection Agency (EPA) does not 

have a direct role in monitoring environmental disclosures, the agency 

encourages the disclosure of environmental legal proceedings by notifying 

companies of potential disclosure obligations and periodically shares 

relevant information with SEC.

You asked us to determine (1) key stakeholders’ views on how well SEC 

has defined the requirements for environmental disclosure, (2) the extent 

to which companies are disclosing environmental information in their 

filings with SEC, (3) the adequacy of SEC’s efforts to monitor and enforce 

compliance with the disclosure requirements, and (4) what actions experts 

suggest for increasing and improving environmental disclosure. To obtain 

views on environmental disclosure requirements, we reviewed SEC’s 

disclosure regulations along with relevant standards and guidance from 

SEC, the Financial Accounting Standards Board, and the American 

Institute of Certified Public Accountants (AICPA). We also interviewed 

representatives of groups with a stakeholder interest in environmental 

disclosure, including investor organizations, financial services institutions, 

environmental groups and consultants, business associations, credit rating 

agencies, and public accounting firms. For information on the extent to 

which companies are disclosing environmental information in their filings 

with SEC, we reviewed 27 studies conducted from 1995 to 2003 and 

assessed their methodologies. After eliminating 12 studies that either had 

severe methodological limitations or did not address aspects of 

environmental disclosure relevant to our objectives, we summarized the 

findings of the remaining 15 studies. At the committee’s request, we 

supplemented our analysis of existing studies with a limited examination of 

disclosures related to potential future risks, focusing on the impacts of 

potential controls on greenhouse gas emissions at 20 U.S. electric utilities 

with relatively high emissions of carbon dioxide. 

For information on SEC’s monitoring and enforcement of environmental 

disclosure requirements, we reviewed SEC’s policies and procedures, 
Page 3 GAO-04-808 Environmental Disclosure

obtained agency statistics on relevant activities, and interviewed officials 

within SEC and EPA. To obtain suggestions for increasing and improving 

environmental disclosure, we conducted a Web-based survey of 30 experts 

that use disclosure information, including representatives of the 

accounting and auditing profession, environmental consultants and 

attorneys, investment and financial services, the insurance industry, 

environmental interest groups, public employee pension funds, and credit 

rating agencies, among others. Some of the experts were also among the 

stakeholders consulted about the disclosure requirements. To ensure 

balance, we sought the views of representatives of reporting companies 

regarding the experts’ suggestions. We conducted our work between 

February 2003 and June 2004 in accordance with generally accepted 

government auditing standards. (See app. I for a detailed description of our 

scope and methodology.)

Results in Brief Key stakeholders disagree on how well SEC has defined the requirements 

for environmental disclosure, with some saying that certain aspects of the 

requirements provide too much flexibility and are too narrowly scoped, 

while others maintain that the flexibility is warranted and the scope 

adequate. The stakeholders who cited concerns generally included groups 

with an interest in environmental protection or socially responsible 

investing. These stakeholders said, for example, that companies may not be 

disclosing some potential environmental liabilities or may be minimizing 

the amounts reported because SEC’s guidance is not specific enough in 

certain areas, such as (1) disclosing liabilities when their occurrence or 

amount is uncertain, (2) assessing the materiality of liabilities and potential 

risks, and (3) disclosing potentially significant environmental problems or 

regulatory initiatives that could pose future financial risks. In contrast, 

stakeholders who viewed the existing requirements for environmental 

disclosure as sufficiently well defined generally represented entities 

responsible for reporting information to SEC and groups with general 

investment interests. Among other things, these stakeholders commented 

that the flexibility in the requirements is necessary to accommodate the 

variability in companies’ circumstances and that developing more specific 

guidance would not be feasible. For some of these stakeholders, the 

problems with inadequate disclosure—to the extent such problems 

exist—are linked to inadequate oversight and enforcement rather than to 

the nature of the requirements. However, this view was not shared by 

representatives of businesses responsible for filing SEC reports, who 

believe that SEC’s oversight is adequate. 
Page 4 GAO-04-808 Environmental Disclosure

Little is known about the extent to which companies are disclosing 

environmental information in their filings with SEC, despite many efforts to 

study environmental disclosure over the past 10 years. The primary 

impediments to conducting such studies lie in determining for specific 

companies (1) what environmental information is potentially subject to 

disclosure and (2) whether the information should be considered 

material—thus meeting the reporting threshold—given the companies’ 

particular circumstances. While disclosure studies can summarize the 

information included in companies’ SEC filings, determining what should 

have been reported may be impossible without direct access to company 

records. The studies included in our review had other serious limitations as 

well, including small sample sizes and narrow focus. While the results of 

these studies are very limited and not generalizable, some indicate that the 

extent of environmental disclosure has increased over time and that, within 

a particular industry, it can vary considerably in terms of the amount and 

type of information provided. Our own analysis of a limited number of 

disclosures related to the future risks posed by potential controls over 

greenhouse gas emissions similarly revealed substantial variation in the 

information that companies are reporting to investors. However, because 

of the flexibility in some aspects of the requirements, it is impossible to 

determine whether differences in the level of disclosure reflect differences 

in the risks companies face or differences in the extent to which companies 

are disclosing these risks.

The adequacy of SEC’s efforts to monitor and enforce compliance with 

environmental disclosure requirements cannot be determined without 

more definitive information on the extent of environmental disclosure and 

the results of SEC’s oversight process. SEC’s primary means of overseeing 

disclosure are reviewing companies’ filings and issuing comment letters to 

request revisions or additional information. In each of the past 5 years, 

SEC’s Division of Corporation Finance reviewed about 8 to 20 percent of 

companies’ annual filings. SEC does not, however, track the nature of the 

division’s comments on filings to identify the most common problems, 

analyze trends, or determine where additional guidance may be warranted. 

Agency officials said that based on their experience, the adequacy of 

companies’ environmental disclosure rarely prompts comments, partly 

because of the nature of the businesses involved, although such comments 

are more prevalent in industries such as manufacturing and oil and gas. In 

keeping with this observation, an SEC review of annual filings from 

Fortune 500 companies in 2002 found relatively few problems with 

environmental disclosure overall, compared with other types of disclosure. 

Despite sporadic efforts to coordinate on improving environmental 
Page 5 GAO-04-808 Environmental Disclosure

disclosure, SEC and EPA do not have a formal agreement to share relevant 

information. At one time, EPA was providing enforcement-related data to 

SEC’s Division of Corporation Finance on a quarterly basis, but SEC 

questioned the usefulness of the data because they were facility-specific 

and SEC could not readily identify the parent company responsible for 

filing reports with SEC. Currently, information sharing occurs less 

frequently and is focused on specific legal proceedings, such as those 

involving monetary sanctions for environmental violations.

Experts’ suggestions on ways to increase and improve environmental 

disclosure fell primarily into three broad categories: (1) modifying the 

disclosure requirements and improving guidance for reporting entities

(2) stepping up SEC’s monitoring and enforcement of existing 

requirements, and (3) adopting nonregulatory approaches to improving 

disclosure. In the first category, some experts that we surveyed suggested 

additional guidance to clarify specific requirements and terminology and to 

rein in flexibility. For example, some experts suggested that SEC clarify its 

requirements for when environmental liabilities must be disclosed and 

require either the use of a specific cost-estimation method or, at a 

minimum, disclosure of more information about the method used and 

related assumptions. In the second category, some experts suggested that 

SEC put more emphasis on corporate compliance with environmental 

disclosure requirements by, for example, reviewing more filings in relevant 

industries, and improve coordination between SEC and EPA on 

environmental matters. Some experts also advocated that when the 

opportunity exists, SEC initiate a few high-profile enforcement cases to 

emphasize the seriousness of not disclosing material environmental 

information and to establish legal precedents for interpreting current 

requirements and guidance. In the third category, suggestions included 

pressure from investor groups and financial institutions for better 

disclosure of environmental information through shareholder petitions and 

voluntary environmental reporting initiatives. Some experts offered 

comments on why particular proposals are unnecessary or unworkable. 

Representatives of reporting companies also believe that some of the 

suggestions would not improve disclosure of environmental information, 

but agreed that nonregulatory approaches can be effective in making 

company management aware of public interest in environmental 

disclosure. 

We are making recommendations to increase the amount of information 

available to SEC and the public on the results of SEC’s filing reviews and to 

improve the level of coordination between SEC and EPA. In commenting 
Page 6 GAO-04-808 Environmental Disclosure

on a draft of this report, SEC agreed with our recommendations and, in 

particular, said that the agency is taking steps to increase the tracking and 

transparency of key information. EPA generally agreed with the 

information presented in the report. 

Background SEC seeks to (1) promote full and fair disclosure; (2) prevent and suppress 

fraud; (3) supervise and regulate the securities markets; and (4) regulate 

and oversee investment companies, investment advisors, and public utility 

holding companies. To ensure that all investors have access to basic 

relevant information prior to trading, federal securities laws require certain 

companies to register with SEC and make public particular information. 

Among other things, these companies are required to file reports with SEC 

about their financial condition and business practices when stock is 

initially sold and on a continuing and periodic basis afterwards to help 

investors make informed decisions. Each year, companies generally must 

file, at a minimum, one annual report, called a 10-K, and three quarterly 

reports, known as 10-Qs. 

SEC promulgates regulations and issues guidance on what information 

public companies must disclose in their filings. Beginning in 1982, SEC 

integrated all of the required disclosures into one omnibus regulation, 

regulation S-K. According to SEC, three sections of regulation S-K are most 

likely to elicit environmental disclosures, either because of specific 

environment-related requirements or common practice: 

• Under S-K item 101, companies must disclose the material effects of 

compliance with federal, state, and local environmental provisions on 

their capital expenditures, earnings, and competitive position;

• Under S-K item 103, companies must describe certain administrative or 

judicial legal proceedings arising from federal, state, or local 

environmental provisions; and

• Under S-K item 303, companies must discuss their liquidity, capital 

resources, and results of operations. For example, companies must 

identify any known trends, demands, commitments, events, or 

uncertainties that may result in a material change in the company’s 

liquidity. In this part of the filing, known as Management’s Discussion 

and Analysis of Financial Condition and Results of Operations, SEC 

expects to see information on any environmental matters that could 

materially affect company operations or finances.
Page 7 GAO-04-808 Environmental Disclosure

In addition to its own disclosure requirements, SEC relies on the standards 

and guidance issued by the Financial Accounting Standards Board and the 

Public Company Accounting Oversight Board to help ensure that 

companies are properly accounting for and reporting on their financial 

operations, including any environmental losses resulting from liabilities or 

from permanent reductions in the value of company assets.1

 For example, 

SEC presumes that financial statements in company filings that are not 

prepared in accordance with generally accepted accounting principles, 

promulgated by the Financial Accounting Standards Board, are misleading 

or inaccurate. Moreover, SEC regulations require companies to submit 

audited financial statements with their annual filings. The audits are 

performed by independent auditors, who are subject to professional 

auditing standards, which until recently were promulgated by the AICPA. 

Under the Sarbanes-Oxley Act of 2002, the new Public Company 

Accounting Oversight Board, appointed and overseen by SEC, is now 

responsible for issuing standards related to the preparation of audit reports 

for publicly held companies.2

To monitor compliance with disclosure requirements, SEC’s Division of 

Corporation Finance periodically reviews companies’ filings and issues 

comment letters to the companies, if necessary, to request additional 

information, amendments of prior filings, or specific disclosures in future 

filings. While Corporation Finance does not have direct authority to compel 

companies to respond to its comment letters, companies know that failure 

to do so could delay approval of filings that they need in order to raise 

capital. In egregious cases, Corporation Finance can refer companies to 

SEC’s Division of Enforcement. The Division of Enforcement can seek 

sanctions against companies for the misrepresentation or omission of 

important information about securities in civil or administrative 

proceedings. Among the sanctions available to SEC are obtaining a 

permanent injunction against an officer of the company; levying monetary 

penalties; requiring the return of illegal profits, known as disgorgement; 

and barring an individual from serving as an officer or director in a public 

1

The securities laws authorize SEC to prescribe the methods to be followed in the 

preparation of accounts and the form and content of financial statements to be filed under 

those laws. To assist in meeting these responsibilities, SEC has historically relied upon 

private sector standard-setting bodies designated by the accounting profession to develop 

accounting principles and standards. Since 1973, SEC has officially recognized the Financial 

Accounting Standards Board as the authoritative standard-setting organization. 

2

The AICPA continues to exist as the officially recognized standard-setting body for 

independent financial audits of nonpublic companies.
Page 8 GAO-04-808 Environmental Disclosure

company. EPA encourages companies to disclose environmental legal 

proceedings by notifying companies of potential disclosure obligations and 

sharing relevant information with SEC. 

Congress passed the Sarbanes-Oxley Act of 2002 to improve the accuracy 

and reliability of corporate disclosures. While the act does not contain 

provisions that specifically address environmental disclosure, some of 

them could lead to improved reporting of environmental liabilities. These 

provisions include requirements for SEC to more frequently review 

company filings; for companies to make real-time disclosures of material 

changes in their financial conditions; and for company officials to annually 

assess the effectiveness of internal controls and procedures for financial 

reporting and to certify that their SEC filings fairly present, in all material 

respects, the company’s financial condition and results of operations. In 

addition, the act authorizes an increase in SEC’s funding for, among other 

things, additional professional support staff necessary to strengthen SEC’s 

disclosure and fraud prevention programs.3

The term “socially responsible investor” refers to individuals who screen 

their investments based on companies’ environmental, labor, or community 

practices. Beginning in the late 1960s, some investors consciously avoided 

the securities of companies they perceived as polluting the environment, 

engaging in unfair labor practices, or otherwise exhibiting poor corporate 

governance, and sought out investments in companies perceived to have 

better records on various social issues. Although initially a marginal 

segment of the investing community, the dollar amount of assets in socially 

screened accounts has increased significantly in recent years. The Social 

Investment Forum, an organization of over 500 social investment 

practitioners and institutions, estimated that in 2003, the total assets 

invested in such accounts were about $2 trillion in the United States, or 

about 11 percent of the $19.2 trillion in assets under professional 

management.4

3

In 2002, we issued a report on the imbalance between SEC’s workload and resource levels. 

See U.S. General Accounting Office, SEC Operations: Increased Workload Creates 

Challenges, GAO-02-302 (Washington, D.C.: Mar. 5, 2002).

4

Social Investment Forum, 2003 Report on Socially Responsible Investing Trends in the 

United States (Washington, D.C.: December 2003).
Page 9 GAO-04-808 Environmental Disclosure

Stakeholders Disagree 

on How Well SEC Has 

Defined Environmental 

Disclosure 

Requirements 

While most of the disclosure requirements are designed for broad 

application—and apply to the disclosure of all types of information, 

including environmental matters—some of the regulations and related 

guidance provide criteria specifically for determining whether and how to 

disclose environmental information. (See app. II for a list of the principal 

requirements and guidance applicable to environmental disclosure.) Key 

stakeholders disagree about whether the flexibility and scope of existing 

disclosure requirements for environmental information are appropriate. 

Some stakeholders who use companies’ filings, such as investors and 

researchers, believe that the existing environmental disclosure 

requirements allow too much flexibility and are too narrow in scope to 

capture important environmental information. Other stakeholders, 

primarily those who prepare or file reports with SEC, hold the opposite 

view, and said that the scope of the current requirements and guidance is 

adequate and that companies need flexibility to accommodate their 

individual circumstances.

Disclosure Requirements 

Are Typically Defined in 

Broad Terms, but They Also 

Include Specific Guidance 

for Environmental 

Information

In determining whether to disclose environmental information, public 

companies generally must apply the same standards and guidance as they 

apply to other information that is potentially subject to disclosure. SEC, the 

Financial Accounting Standards Board, and the AICPA have issued broadly 

applicable regulations, standards, and guidance related to determining the 

likelihood and amount of potential liabilities; the materiality of information 

relevant to the company, its results of operations, or its financial condition; 

and the extent to which future risks must be disclosed. 

Generally accepted accounting principles require companies to report 

liabilities, including environmental liabilities, in their financial statements if 

the liabilities’ occurrence is “probable” and their amounts are “reasonably 

estimable.” A liability is reasonably estimable if company management can 

develop a point estimate or determine that the amount falls within a 

particular dollar range. According to generally accepted accounting 

principles, companies should always accrue (and disclose) their best 

estimate for a liability in their financial statements, given the range of 

possible costs. If no one estimate is better than the others, the applicable 

accounting standard specifies that companies should accrue the lowest 

estimate in the range in their financial statements, although they must still 

disclose the potential for additional liability in the footnotes to the
Page 10 GAO-04-808 Environmental Disclosure

statements.5 If the liability does not meet one or both of the criteria for 

accruing in the financial statements, it must nonetheless be disclosed in the 

footnotes if it is “reasonably possible.” The term “reasonably possible” 

represents a range of possible outcomes that have a greater than remote 

chance of occurring. 

SEC regulations generally require disclosure of information only if it is 

“material.” According to SEC officials, in determining whether information 

is material, the agency relies on the Supreme Court’s statement that “an 

omitted fact is material if there is a substantial likelihood that a reasonable 

shareholder would consider it important in deciding how to vote.”6

Guidance issued by the Financial Accounting Standards Board states that 

the omission of an item in a financial report is material, if, in light of 

surrounding circumstances, the magnitude of the item is such that it is 

probable that the judgment of a reasonable person relying on the report 

would have changed or been influenced by the inclusion or correction of 

the item. In general, SEC and other standard-setting bodies recognize that 

only those who have all the facts can properly make materiality judgments.

The Financial Accounting Standards Board believes that no general 

standards of materiality could be formulated to take into account all the 

considerations that enter into an experienced human judgment.

Concerning the disclosure of future risks, including risks related to 

environmental matters, SEC regulation S-K item 303 requires company 

management to discuss the company’s liquidity, capital resources, and 

results of operations. For example, a company must identify any known

trends, demands, commitments, events, or uncertainties that may result in 

a material change in the company’s liquidity. In addition, under item 303 

companies are “encouraged” to include in their filings forward-looking 

information, which SEC guidance defines as anticipating a future trend or 

event, or anticipating a less predictable impact of a known event, trend, or

5

If the best estimate in a range is accrued, then the potential for additional liability need not 

be disclosed. However, under guidance from the AICPA, companies must disclose the risks 

and uncertainties of their estimates when it is at least reasonably possible that the estimates 

will change in a way that is material to the financial statements within the next year. See 

AICPA, Statement of Position 94-6: Disclosure of Certain Significant Risks and 

Uncertainties, (New York, N.Y.: 1994).

6

See Basic, Inc., v. Levinson, 485 U.S. 224, 231 (1988) citing TSC Industries v. Northway, Inc., 

426 U.S. 438, 449 (1976).
Page 11 GAO-04-808 Environmental Disclosure

uncertainty.7 In a 1989 interpretive release, SEC explained when companies 

are obligated to disclose future risks. The guidance says that “a disclosure 

duty exists where a trend, demand, commitment, event or uncertainty is 

both presently known to management and reasonably likely to have 

material effects on the registrant’s financial condition or results of 

operation.”8

Some reporting standards and guidance relate specifically to the disclosure 

of environmental information or contain specific environmental 

benchmarks. For example, the AICPA has issued comprehensive 

supplemental guidance on the disclosure of environmental liabilities.9

 For 

determining whether environmental liabilities should be disclosed, this 

guidance uses the terms “probable,” “reasonably possible,” or “remote,” as 

benchmarks for determining the likelihood that a liability will occur and 

includes some representative situations in which disclosure is warranted. 

By way of illustration, the guidance suggests that companies use 

notification by EPA that they are a potentially responsible party at a 

hazardous waste site as an indication that a liability is probable and subject 

to disclosure if material. The supplemental accounting guidance also 

contains a chapter on measuring the amount of environmental liabilities, 

given the uncertainties inherent in environmental sites. It identifies the cost 

elements that should be included when estimating the dollar amount of a 

liability—including litigation, risk assessment and planning, cleanup, and 

monitoring—and it requires companies to use whatever information is 

available. 

Disclosure of environmental information is also specifically addressed in 

SEC regulation S-K item 103. Although SEC’s regulations and guidance 

7

SEC regulations provide a “safe harbor” under which the agency will generally not consider 

forward-looking statements to be fraudulent.

8

SEC’s guidance further states that if management determines that the known trend, 

demand, commitment, event, or uncertainty is not reasonably likely to occur, no disclosure 

is required. However, if management cannot make such a determination, it must proceed on 

the assumption that the trends or events will come to fruition; disclosure is then required 

unless management determines that a material effect is not reasonably likely. See Securities 

and Exchange Commission, SEC Interpretation: Management’s Discussion and Analysis 

of Financial Condition and Results of Operations; Certain Investment Company 

Disclosures [Release Nos. 33-6835; 34-26831; IC-16961; FR-36] 54 Fed. Reg. 22427, 22430 

(1989).

9

See AICPA, Statement of Position 96-1: Environmental Remediation Liabilities, (New 

York, N.Y.: 1996).
Page 12 GAO-04-808 Environmental Disclosure

generally do not establish numeric thresholds for determining materiality, 

item 103 contains two exceptions related to environment-related legal 

matters: Companies must disclose as material administrative or judicial 

proceedings that involve (1) federal, state, or local environmental laws, if 

the potential amount of the losses exceeds 10 percent of the company’s 

current assets and (2) potential monetary sanctions of $100,000 or more, if 

a governmental authority is a party to the proceedings. In each case, these 

amounts are calculated exclusive of interest and costs. Companies must 

report potential monetary sanctions of $100,000 or more whether or not the 

amount would otherwise be considered material, unless the company 

reasonably believes that the proceeding will result in no monetary sanction 

or in sanctions of less than $100,000.

Some Users of Disclosure 

Information Said Existing 

Environmental Disclosure 

Requirements Are Too 

Flexible and Too Narrowly 

Scoped

Some users of company filings—including environmental interest groups, 

investment analysts with an interest in socially responsible investing, 

researchers, and others—said that existing requirements allow too much 

flexibility and are too narrowly scoped to provide adequate disclosure of 

environmental information. These stakeholders maintained that the 

existing regulations give companies too much leeway in determining what 

environmental information to disclose and limit the extent of disclosure by 

defining environmental information narrowly. As a result, they believe, 

companies’ disclosure of environmental information is inadequate, 

hindering investors’ ability to assess companies’ overall financial condition 

and the risks they face.

These stakeholders said that the relevant regulations and guidance are too 

flexible in several areas. Regarding the point at which companies should 

disclose a liability, stakeholders said that the current standards and 

guidance are unclear; for example, opinions vary on whether a disclosure 

obligation exists at the time the environmental contamination occurs or the 

point at which a regulatory agency (or some other third party) has taken 

action against a company to force a cleanup. In addition, some 

stakeholders said that companies can use the apparent flexibility in judging 

the likelihood of a liability to postpone or avoid disclosure.

Stakeholders also said that applicable regulations and guidance make it too 

easy for companies to conclude that they have nothing to disclose or 

cannot calculate an estimate, or to default to a known minimum amount 

rather than develop a best estimate. Estimating the amount of 

environmental liabilities involves several uncertainties, among them the 

extent of contamination and required cleanup, the stringency of applicable 
Page 13 GAO-04-808 Environmental Disclosure

cleanup standards, the state of the art of available cleanup technology, and 

the extent to which cleanup costs might be shared with other responsible 

parties or offset by insurance recoveries. However, stakeholders believe 

that companies have developed methods to account for such uncertainties 

that yield better estimates than the known minimum, and they believe that 

companies should be required to share this information with investors. 

On assessing materiality, stakeholders expressed concern that the existing 

regulations and guidance largely rely on the discretion of company 

management and that the requirements generally do not establish minimum 

thresholds for disclosure. Some stakeholders also said that the materiality 

standard does not sufficiently emphasize the need to disclose intangible, 

nonquantifiable factors, such as the impact of environmental 

contamination on a company’s reputation. 

Regarding disclosure of future risks, stakeholders said that SEC 

regulations and guidance do not clearly distinguish between “known 

information” that could cause reported financial information to not be 

indicative of future results and “forward-looking information,” which may 

be less certain but could have a greater potential impact. As a result, 

companies have more flexibility in determining which risks can be 

characterized as forward-looking and thus avoid disclosing the 

information.

In addition to concerns about the degree of flexibility allowed in the 

regulations and guidance, users of company filings also said that the 

disclosure requirements are too narrowly scoped in some areas to ensure 

that companies are making available all of the important environmental 

information needed by investors. Stakeholders expressed the following 

concerns, among others:
Page 14 GAO-04-808 Environmental Disclosure

• SEC’s definition of monetary sanctions does not include certain costs 

related to the sanctions. Specifically, in determining when the $100,000 

disclosure threshold has been met, SEC regulations and guidance 

exclude costs associated with (1) environmental remediation and (2) 

supplemental environmental projects conducted in lieu of paying 

sanctions.10

• SEC’s regulations do not require companies to aggregate the estimated 

costs of similar potential liabilities, such as multiple hazardous waste 

sites, when assessing materiality. 

• Companies are not required to disclose information about their 

environmental assets or environmental performance.11 A growing body 

of socially responsible investors believes that such information could be 

material to many investors or indicative of effective corporate 

management. 

• SEC regulations do not require companies to disclose quantitative 

information on the total number of environmental remediation sites, 

related claims, or the associated liabilities. As a result, investors cannot 

determine whether companies have enough reserves to cover current 

and future liabilities. 

Reporting Companies and 

Other Stakeholders Said 

That the Flexibility within 

Existing Disclosure 

Requirements Is Necessary 

and the Scope Adequate 

Reporting companies and other stakeholders did not share concerns about 

the flexibility and scope of the disclosure requirements; they said that the 

flexibility is warranted and the scope adequate. In general, stakeholders 

representing industry, independent auditors, financial analysts with general 

investment interests, and others told us that the existing requirements are 

sufficient to provide for the disclosure of material environmental 

information and that requiring additional information would not improve 

investors’ ability to make sound investment decisions. 

10A supplemental environmental project is part of an enforcement settlement related to the 

violation of an environmental law or regulation. As part of the settlement, a violator 

voluntarily agrees to undertake an environmentally beneficial project in exchange for a 

reduction in the penalty; the project does not include activities a violator must take to return 

to compliance with the law.

11Environmental assets could include, for example, emission “credits” under an emission 

trading program in which companies that keep their pollutant emissions below their 

allowed level may sell their surplus allotments, known as emission reduction credits, to 

other companies. 
Page 15 GAO-04-808 Environmental Disclosure

In commenting on the inherent flexibility of existing disclosure 

requirements, these stakeholders emphasized that reporting companies 

need to have a framework that can accommodate a variety of 

circumstances and that developing more specific guidance would not be 

feasible. In particular, these stakeholders opposed requiring more 

disclosure of future risks, such as the estimated costs associated with 

potential environmental regulations, because of the degree of uncertainty 

about the impact on companies’ financial condition and operations. In 

addition, they pointed out that while the requirements allow some 

flexibility in interpretation, there are clear benchmarks for those who 

report or prepare filings.

Both reporting companies and financial analysts said that the scope of the 

existing disclosure requirements is adequate to ensure that material 

environmental information is reported, for several reasons:

• Companies typically disclose nonfinancial information, including 

information on corporate environmental performance, in other public 

documents, such as press releases and separate environmental reports. 

Including such information in SEC filings is generally not appropriate. 

• According to financial analysts with general investment interests, 

environmental information is less important than other types of 

information, such as executive compensation or the percentage of stock 

owned by the Board of Directors, in assessing a company’s condition 

and its desirability as a potential investment. 

• Asking companies to disclose more information in their filings, without 

any assurance that such information is material to the company’s overall 

financial condition, would not add value and might burden readers of 

the filings with irrelevant data.

• Environmental regulations and market forces—not SEC disclosure 

requirements—drive companies to comply with environmental laws and 

assess their environmental performance. 

• Requiring companies to aggregate similar types of environmental 

liabilities would not necessarily be useful to investors because rolling up 

the potential costs of individual sites—along with the uncertainties 

associated with each of them—might distort the actual risks a company 

faces.
Page 16 GAO-04-808 Environmental Disclosure

Some stakeholders who believe the requirements are sufficient linked 

problems with inadequate disclosure—to the extent such problems 

exist—to inadequate oversight and enforcement. For example, while they 

did not see a need to change the current standards and guidance, the 

stakeholders said that SEC could improve companies’ environmental 

disclosure with more thorough reviews of environmental information in 

companies’ filings. Company representatives and auditors we contacted do 

not share this concern, but rather they believe that SEC efforts are 

adequate, given the relative importance of environmental information to 

most companies’ financial condition. 

Little Is Known about 

the Extent to Which 

Companies Are 

Disclosing 

Environmental 

Information in SEC 

Filings 

Determining what companies should be disclosing in SEC filings is 

extremely challenging without having access to company records and 

considering the flexibility in the disclosure requirements. Existing studies 

of environmental disclosure all have strong-to-severe methodological 

limitations. Some of the studies provide tentative insights about the 

amount of environmental information companies are disclosing but not the 

adequacy. Our limited review of disclosures related to potential controls 

over greenhouse gas emissions shows a wide variation in company filings 

and also illustrates some of the challenges facing researchers. 

Several Factors Make It 

Difficult to Determine 

Whether Companies Are 

Fully Disclosing Material 

Environmental Information

Assessing companies’ disclosure of environmental information is difficult, 

primarily because researchers have no way of knowing what 

environmental information is (1) potentially subject to disclosure and (2) 

material in the context of a company’s specific circumstances, and 

therefore required to be reported. Because company records are generally 

not publicly available, it is virtually impossible for an external party to 

know what information companies should be disclosing. In the case of 

existing environmental contamination, for example, evaluating the 

adequacy of companies’ disclosure may require information on the number 

of sites, the nature of the contamination, projected cleanup costs, and the 

extent to which the companies’ liability may be shared by others or 

mitigated by insurance, among other things. Evaluating companies’ 

disclosures regarding potential future risks, such as the impact of potential 

changes in environmental regulations, poses similar problems. 

Another obstacle to assessing companies’ disclosure is the flexibility 

inherent in certain reporting requirements and related guidance. A number 

of key requirements use terms that are general enough to accommodate a 
Page 17 GAO-04-808 Environmental Disclosure

range of situations and allow company management to exercise judgment 

regarding the amount and type of information they disclose. For example, 

in determining whether an existing or potential environmental liability 

should be reported in financial statements, company officials must 

determine if the occurrence of such liabilities is “reasonably possible” and 

the amounts are “reasonably estimable.” SEC, the Financial Accounting 

Standards Board, and the AICPA have all issued standards and guidance to 

assist companies and their independent auditors in making these 

determinations, but inevitably, some subjective judgments remain. 

Similarly, in assessing the materiality of environmental information, SEC’s 

guidance says that companies should consider information that a 

“reasonable person” would need to make an investment decision. 

Generally, SEC’s regulations and guidance do not establish any minimum 

thresholds for materiality. Finally, in the case of disclosing future risks, 

companies have some flexibility in deciding what qualifies as “known 

material trends, events, and uncertainties” that would cause the companies’ 

reported financial information to not be indicative of future operating 

results or financial condition.

One of the consequences of disclosure requirements that are subject to 

interpretation—and of not having direct access to company records—is the 

difficulty of determining with any certainty whether a low level of 

disclosure indicates that the company does not have existing or potential 

environmental liabilities, has determined that such liabilities are not 

material, or is not adequately complying with disclosure requirements. The 

varying formats used for disclosure pose another problem for researchers. 

Much of the environmental information that is subject to disclosure can be 

reported in a number of different sections of the 10-K filing, including the 

financial statements, related footnotes, and various narrative sections of 

the report. In addition, the information may be stated in general or specific 

terms and companies often use different terminology to describe similar 

issues.
Page 18 GAO-04-808 Environmental Disclosure

While Limited and Not 

Generalizable, Existing 

Studies Indicate That the 

Extent of Disclosure Has 

Increased Over Time and 

Can Vary Substantially 

within Industries

We identified 27 studies and papers that (1) were published, presented at 

conferences, or provided by the authors from 1995 to 2003 and (2) 

contained original research on companies’ environmental disclosures.12 We 

eliminated 12 studies that either had severe methodological limitations or 

did not address aspects of environmental disclosure relevant to our 

objectives. (App. III contains abbreviated descriptions of the studies we 

identified, excluding those with severe limitations and those that were 

outside our focus.)13 While the remaining 15 studies all contain strong 

limitations, they provide tentative insights about the amount and type of 

information being disclosed. For example, as several of these studies 

acknowledged, the small sample sizes and focus on particular industries 

prevent the study results from being generalizable beyond the specific 

companies reviewed. In addition, while the 15 studies shed some light on 

the amount and type of information disclosed by selected companies—and 

how it varied among them or changed over time—in some instances, the 

researchers drew conclusions beyond what was supported by their 

analysis. 

Eleven of the studies found variations in the amount of information specific 

companies were disclosing in their filings with SEC. Some of these studies 

focused on the disclosure of existing environmental liabilities while others 

examined disclosures related to future potential risks, ranging from 

impending regulations to larger issues such as global climate change. For 

example, a 1998 study on disclosure of Superfund remediation liabilities by 

12Among the studies included in our initial selection were two EPA-sponsored studies on the 

disclosure of environmental legal proceedings. Although the studies have never been 

published, the results of one were included in a paper presented at a conference and have 

been widely cited in the literature. According to EPA officials, the agency stopped short of 

publishing the studies because of concerns about the methodology used and the validity of 

the results obtained. For example, when EPA officials attempted to verify the results of one 

study, they found many instances in which the companies had actually disclosed some of the 

information that EPA’s contractor had determined to be unreported. EPA officials identified 

several reasons for the discrepancies, including instances in which the companies had 

disclosed legal proceedings prior to the time frame reviewed by the contractor, 

inappropriate criteria for determining whether particular disclosures were “correct,” and 

the use of search terms that were not sufficient to identify company disclosures. According 

to EPA officials, both studies used similar methodologies. We also identified methodological 

limitations and eliminated the EPA-sponsored studies from our analysis.

13Our 1993 report, Environmental Liability: Property and Casualty Insurer Disclosure of 

Environmental Liabilities, GAO/RCED-93-108 (Washington, D.C.: June 2, 1993), did not fall 

within the time frame we established for this review. If the report had been included, 

however, certain limitations, such as a small sample size and narrow scope, would have 

affected the extent to which conclusions could be drawn from the study.
Page 19 GAO-04-808 Environmental Disclosure

140 companies found that the amount of information they disclosed about 

the number and location of the sites, the materiality of the liabilities, and 

the estimated amounts varied substantially.14 Some of the companies did 

not disclose any information and others did not provide enough 

information to allow a meaningful assessment of the companies’ risks, 

according to the authors. Six of the 11 studies found that variations among 

companies within the same industry can be substantial. For example, a 

2003 study that looked at how 38 coal-fired electric utilities reported on the 

impact of the Clean Air Act Amendments of 1990 found wide variation in 

the types of disclosures by these companies. Among other things, the study 

found that in their filings for 1990, 22 of the utilities disclosed their 

estimated compliance costs while 16 did not provide an estimate.15

Five studies, including three from the previous group, indicated that the 

amount and type of information specific companies were disclosing 

increased over time. In two instances, researchers linked the increased 

disclosure to the issuance of guidance that assisted companies in 

determining what information should be reported. For example, a study of 

nearly 200 companies that had been identified as potentially responsible 

parties at multiple hazardous waste sites indicated that the number of 

companies reporting environmental liabilities increased following the 

issuance of SEC’s Staff Accounting Bulletin 92, which provided examples 

of the types of information SEC expected to see regarding such sites.16 In 

the other case, a 1995 study of environmental disclosures by 234 companies 

found that the amount of information reported in 10-Ks and the companies’

14Martin Freedman and A.J. Stagliano, “Political Pressure and Environmental Disclosure: 

The Case of EPA and the Superfund,” Research on Accounting Ethics (Vol. 4, 1998).

15Martin Freedman, B. Jaggi, and A.J. Stagliano, “Pollution Disclosures by Electric Utilities: 

An Evaluation at the Start of the First Phase of the 1990 Clean Air Act,” Advances in 

Environmental Accounting & Management (2004).

16Specifically, the study focused on Staff Accounting Bulletin No. 92, Topic 5.Y: Accounting 

Disclosures Relating to Loss Contingencies. See Elizabeth Stanny, “Effect of Regulation on 

Changes in Disclosures of and Reserved Amounts for Environmental Liabilities,” The 

Journal of Financial Statement Analysis (summer, 1998).
Page 20 GAO-04-808 Environmental Disclosure

annual reports to shareholders increased following the issuance of 

guidance from SEC and the Financial Accounting Standards Board.17

Nine of the 15 studies attempted to address the extent or adequacy of 

companies’ environmental disclosure in terms of meeting SEC’s reporting 

requirements.18 In most of these cases, the studies concluded that 

environmental disclosures were inadequate. However, because the criteria 

used to assess the disclosures may not have been appropriate, it is 

impossible to validate the studies’ conclusions about how well or poorly 

companies are meeting SEC reporting requirements. All of these studies 

used criteria that either included items not required by SEC or reflected the 

researchers’ interpretations of SEC reporting requirements and related 

guidance. In several instances, the researchers acknowledged that their 

interpretation of the requirements would not necessarily be consistent with 

others’ views. 

A Limited Review of 

Disclosures Related to 

Potential Controls Over 

Greenhouse Gas Emissions 

Shows Wide Variation in 

Company Filings

To supplement our analysis of existing studies, we reviewed disclosures by 

20 U.S. electric utility companies that were among the largest emitters of 

carbon dioxide, a major component of greenhouse gas emissions.19 While 

various investor organizations, pension fund managers, and environmental 

interest groups have called on companies to make more information 

available on this subject, disclosures about the impact of potential 

greenhouse gas controls are not necessarily required at this time, according 

to officials at SEC’s Division of Corporation Finance, because controls do 

not appear imminent at the federal level through ratification of the Kyoto

17For example, the study cited the issuance of SEC’s 1989 guidance, SEC Interpretation: 

Management’s Discussion and Analysis of Financial Condition and Results of 

Operations; Certain Investment Company Disclosures. See George O. Gamble, Kathy Hsu, 

Devaun Kite, and Robin R. Radtke, “Environmental Disclosures in Annual Reports and 10Ks: 

An Examination,” Accounting Horizons, Vol. 9, No. 3, (September 1995).

18Three of these studies are among those that examined changes in the amount of disclosure 

over time.

19Greenhouse gases include carbon dioxide (mainly from burning coal, oil, and natural gas); 

methane and nitrous oxide (largely due to agriculture and changes in land use); and 

hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride (manufactured by industry). 

These gases trap heat in the atmosphere and are believed to contribute to climate change, 

including global warming. 
Page 21 GAO-04-808 Environmental Disclosure

Protocol or legislation.20 At the same time, the officials did not rule out 

such disclosures, commenting that there may be circumstances in which a 

company can identify a material impact and must disclose it in the filing. 

Some companies have opted to include information regarding potential 

controls over greenhouse gas emissions in their SEC filings, partly in 

response to public interest. To the extent that companies make disclosures 

regarding controls over greenhouse gas emissions or other potential future 

risks, investors may find the information useful in deciding whether to buy 

or sell individual securities. However, because disclosure of such 

information is not necessarily required, investors cannot draw conclusions 

about the lack of such information in a company’s SEC filing or compare 

companies within an industry.

For each utility company, we reviewed the annual and quarterly SEC filings 

for 2003 to determine whether and how the companies discussed the 

impact of potential controls over greenhouse gas emissions and found that 

the amount and type of information disclosed varied widely. Of the 20 

electric utility companies included in our review, we found that 1 made no 

disclosures regarding greenhouse gas controls in its filings. The filings for 

18 of the remaining 19 companies described one or more potential controls, 

including the Kyoto Protocol and other international requirements; 

proposals for federal legislation requiring reductions in greenhouse gas 

emissions; and current and proposed state requirements. In addition, while 

all 19 companies referred to the potential impact of controls, the level of 

detail varied among the companies. Moreover, while none of the 19 

companies attempted to estimate the dollar value of the impact, citing 

uncertainty over the specific nature of the requirements that might take 

effect, they generally indicated that the impact could be material.21 Table 1 

summarizes the types of information the electric utility companies 

disclosed about the impact of potential controls over greenhouse gas 

emissions. 

20In December 1997, the United States participated in drafting the Kyoto Protocol, an 

international agreement to specifically limit greenhouse gas emissions. Although the U.S. 

government signed the Protocol in 1998, the Clinton administration did not submit it to the 

Senate for advice and consent, which are necessary for ratification. In March 2001, 

President Bush announced that he opposed the Protocol. 

21In some instances, the company filings use terms like “significant,” “substantial,” or “farreaching” to characterize the potential impacts, without referring specifically to materiality.
Page 22 GAO-04-808 Environmental Disclosure

Table 1: Disclosures Related to Potential Impacts of Current or Proposed Requirements to Reduce Greenhouse Gas Emissions

Source: GAO analysis.

In addition to differences in the level of detail companies provided, we 

found considerable variation in where the disclosures were located within 

the filings, posing a challenge for researchers trying to find information on 

Number of utility companies

reporting potential impact Description of potential impact

Impacts related to Kyoto Protocol

8 U.S. operations only: Compliance costs could require significant capital, operating, or other 

expenditures and/or have materially adverse impacts on generating facilities or future financial 

position, results of operations, or liquidity, if associated costs cannot be recovered from 

customers.

3 U.S. and international operations: Compliance costs could be material and/or there could be 

far-reaching and significant impacts on operations.

2 International operations only: Significant compliance costs may affect operations.

1 U.S. operations only: Specific impacts on operations could not be identified because of 

uncertainties.

6 None.

Impacts related to current administration policy on voluntary reductions

5 The company stated it was unable to determine the potential impact.

4 Compliance costs could be significant or material, and/or possible impacts on operations.

11 None.

Impacts related to other current or proposed federal, state, or international 

requirements

5 Federal requirements only: Compliance costs could have a significant or material impact 

(either positive or negative) on the company’s generating facilities and/or future financial 

position, results of operations, liquidity, or cash flows, if the costs are not recoverable from 

customers.

5 Federal and state requirements: Compliance costs could have a significantly or materially 

adverse affect on the company’s operations, consolidated financial position, results of 

operations, cash flow, or profitability, if associated costs cannot be recovered from customers.

3 Federal, state, and international requirements: There are substantial or material implications 

for the company’s costs; plants; global business operations; or future consolidated results of 

operations, cash flows, or financial position.

1 General statement only: The company may incur liabilities because of its emission of gases 

that may contribute to global warming.

1 Federal requirements only: The company stated it was unable to determine the potential 

future impacts on its financial condition and operations.

1 Federal, state, and international requirements: The company stated it was unable to 

determine the potential future impacts on its financial condition and operations.

4 None.
Page 23 GAO-04-808 Environmental Disclosure

particular topics. Of the 19 companies that provided information on the 

impact of potential controls over greenhouse gas emissions, 

• 7 disclosed such information only in the S-K item 101, “Description of 

Business” section of the company’s 10-K or 10-Q reports;

• 2 disclosed information only in S-K items 301 and 302, “Selected 

Financial Data” and “Supplementary Financial Information” sections of 

the company’s 10-K or 10-Q reports;

• 2 disclosed information only in S-K item 303, “Management’s Discussion 

and Analysis of Financial Condition and Results of Operations” section 

of the company’s 10-K or 10-Q reports; and 

• 8 disclosed information in multiple sections of the 10-K, 10-Q, or the 

company’s annual report to shareholders.

Ten of the 20 utility companies disclosed planned efforts to voluntarily 

reduce their greenhouse gas emissions—or to avoid increasing them—over 

the next several years. For example, one company reported that it had 

joined the Chicago Climate Exchange, a pilot greenhouse gas emission 

reduction and trading program, and had committed to reducing or 

offsetting 18 million tons of carbon dioxide emissions by 2006. Two other 

companies reported joining EPA’s Climate Leaders program, in one case 

committing to an 18 percent reduction of greenhouse gas emissions from a 

2001 baseline by 2008. Only one of the companies estimated its projected 

spending on voluntary reduction efforts: the company reported that it 

planned to spend $21 million between 2004 and 2010 on projects to reduce 

or offset its greenhouse gas emissions. 

Adequacy of SEC’s 

Efforts to Monitor and 

Enforce Compliance 

with Environmental 

Disclosure 

Requirements Cannot 

Be Determined

Without better information on the extent of environmental disclosure and 

results of SEC’s reviews of companies’ filings, the adequacy of SEC’s efforts 

to monitor and enforce compliance with environmental disclosure 

requirements cannot be determined. SEC does not maintain a database on 

the substance of its comments and company responses, and thus SEC 

cannot use the information to identify trends or set priorities. Over the 

years, SEC and EPA have made sporadic efforts to coordinate on improving 

environmental disclosure. Currently, EPA periodically shares limited 

information on specific, environment-related legal proceedings, such as 

those involving monetary sanctions. 
Page 24 GAO-04-808 Environmental Disclosure

SEC Does Not 

Systematically Track or 

Analyze the Results of Its 

Oversight Efforts

SEC’s primary means to monitor and enforce requirements for the 

disclosure of material information—including environmental matters—are 

the review of companies’ filings and the issuance of comment letters to 

obtain additional information, as appropriate. According to officials from 

the Division of Corporation Finance, SEC relies on reporting companies 

and their independent auditors to completely and accurately disclose 

material information to investors; SEC’s role is to help companies ensure 

that they are making the required disclosures and properly interpreting the 

requirements. Even if SEC’s role were broader, SEC officials told us that 

the agency does not have the resources to review all company filings or 

conduct on-site examinations to proactively ensure that companies are 

disclosing all material information. 

Reviewers in the Division of Corporation Finance do a preliminary review 

of companies’ annual 10-K filings to determine which reports warrant 

further scrutiny and at what level.22 Of those reports, SEC usually conducts 

either a full review, which covers all aspects of the filing, or a financial 

review, which focuses primarily on the financial statements and related 

material, such as the section including management’s discussion and 

analysis. SEC may also choose to conduct a limited review of specific 

issues that have been identified as needing attention. For example, a 

limited review might focus on a company’s accounting policy for 

recognizing revenue in its financial records and reports. As table 2 shows, 

SEC reviewed about 8 to 20 percent of the annual filings each year from 

1999 through 2003.

22For our review, we focused on SEC’s monitoring of companies’ annual 10-K reports. SEC 

also reviews quarterly filings, known as 10-Qs, and various “transactional” filings related to 

newly issued securities, efforts to raise additional capital, and mergers and acquisitions. 

According to SEC officials, the reviewers examine most filings related to initial public 

offerings and selectively review other transactional filings as well as a sampling of the 

annual and quarterly filings. 
Page 25 GAO-04-808 Environmental Disclosure

Table 2: SEC’s Reviews of Companies’ Annual 10-K Filings, Fiscal Years 1999 

through 2003

Source: GAO analysis of SEC data.

a

SEC’s reviews declined in fiscal year 2000 because the high volume of filings related to initial public 

offerings limited the agency’s ability to review other filings.

To ensure consistency across reviewers, SEC uses guidance that provides 

an organizational structure for each review and the documentation that 

supports it. The guidance identifies, as a reminder for the reviewers, 

various aspects of the filing that should be covered in the review, 

depending on the particular company and the industry it represents; among 

other things, the guidance cites the adequacy of disclosures related to 

environmental liabilities. If a reviewer questions the accuracy or 

completeness of the filing and believes that further disclosures may be 

warranted, SEC issues a comment letter requesting additional 

information.23 SEC officials said that companies may sometimes be 

reluctant to respond to the comment letters, claiming that providing the 

requested information is too difficult or expensive or will hurt their 

competitive position. In the case of time-critical transactional filings, 

companies have an incentive to respond to SEC’s comment letters because 

the companies cannot raise additional capital by issuing securities until 

SEC has cleared the filings. Although the Division of Corporation Finance 

does not have a similar “stick” to compel companies to respond in the case 

of the 10-K or 10-Q filings, the companies generally comply, according to 

SEC officials. 

When a company’s failure to respond is particularly egregious, SEC may 

refer the case to its Division of Enforcement. According to information 

from the Division of Enforcement and other sources, we identified four 

enforcement actions related to inadequate environmental disclosure since 

1977, none of which were referred by the Division of Corporation Finance. 

Enforcement officials were not aware of any additional cases and said that 

1999 2000a 2001 2002 2003

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

Annual filings reviewed by SEC 2,345 1,160 2,305 2,695 2,170

Percentage of filings reviewed 17.4 8.1 16.4 19.9 16.9

23Other actions resulting from a filing review can include requesting an amendment of a past 

report or advising the company to make a disclosure in a future report.
Page 26 GAO-04-808 Environmental Disclosure

while they track enforcement cases by broad program area, such as 

broker-dealer fraud, insider trading, and issuer financial disclosure, they do 

not track the number of cases in which environmental disclosure is the 

primary issue. According to an official in the Division of Enforcement, most 

enforcement actions are prompted by company whistleblowers or news 

reports of company wrongdoing rather than referrals from the Division of 

Corporation Finance.

SEC officials noted that reviewing company filings is an iterative process; a 

single filing often generates multiple comment letters and responses before 

SEC is satisfied that all matters have been resolved. In some instances, SEC 

raises one or more questions about the disclosures in a company’s filing 

and, based on the company’s response, is either satisfied with the 

explanation or decides that the matter does not warrant additional 

follow-up. 

SEC’s Division of Corporation Finance does not systematically track the 

issues raised in comment letters. According to SEC officials, they do not 

have a database on the comment letters that would enable them to 

determine the most frequently identified problem areas, analyze trends 

over time or within particular industries, or assess the need for additional 

guidance in certain areas. SEC officials told us that for the most part, they 

rely on the reviewers’ knowledge and experience to get a sense of the most 

common problem areas. While SEC did not have any statistics on the 

frequency with which its comment letters questioned companies’ 

environmental disclosures, Division of Corporation Finance officials told 

us that, based on their experience, environmental disclosure is rarely 

among the issues cited if one considers all of the filings SEC reviews, partly 

because of the nature of the businesses involved. Within particular 

industries, however, SEC officials said that reviewers regularly and 

frequently comment on environmental disclosure. 

In the absence of a formal tracking system, an SEC study of annual 10-K 

filings from the Fortune 500 companies for the year 2002 provided some 

information on the most common disclosure issues. To conduct the study, 

SEC screened the companies’ filings and then selected a substantial 

number for further review; ultimately, SEC sent comment letters to more 

than 350 companies. According to officials from the Division of 

Corporation Finance, the type and frequency of comments identified in the
Page 27 GAO-04-808 Environmental Disclosure

Fortune 500 study were consistent with their observations generally.24

SEC’s summary report noted that environmental disclosure prompted 

comments more frequently in particular industries, such as oil and gas and 

mining companies and certain manufacturing companies. The reviewers 

questioned companies’ disclosure of critical accounting policies related to 

environmental liabilities including, among other things, the adequacy of 

information on estimates of potential losses and litigation costs. 

Although SEC does not have a database of its comment letters and the 

company responses, officials from the Division of Corporation Finance told 

us that much of the information can be obtained from other sources. The 

officials explained that at least one private company has been submitting 

thousands of requests for the comment letters and responses under the 

Freedom of Information Act and is making the information available to the 

public for a fee. According to the officials, responding to these requests has 

absorbed a considerable amount of SEC staff time and other resources.

SEC has taken steps to facilitate its ability to analyze the results of its 

monitoring process. For example, SEC is establishing a new Office of 

Disclosure Standards. Among other things, the office will be responsible 

for ensuring the quality and consistency of reviews across reviewers and 

different industry groups. As part of that effort, in March 2004, SEC began 

to require reviewers to prepare a closing memorandum containing a listing 

of all documents examined by SEC reviewers, a summary of the major 

issues raised during their review, and how they were resolved. While these 

memoranda are being prepared in electronic form, the information is 

currently not coded or organized to facilitate analysis across multiple 

filings. SEC is still determining how it might organize and use these data.

24Among the most common problems identified in the Fortune 500 study were the need for 

better analysis of—and less boilerplate information on—companies’ financial condition and 

results of operations; expanded discussion of companies’ critical accounting policies, 

including, for example, the most difficult and judgmental estimates and the areas most 

sensitive to material change from external factors; clarification of how companies recognize 

revenue; and more comprehensive disclosures related to restructuring charges and pension 

plans.
Page 28 GAO-04-808 Environmental Disclosure

SEC and EPA Have Made 

Limited Efforts to Improve 

Environmental Disclosure 

through Coordination 

Over the past 20 years, SEC and EPA have made sporadic efforts to 

improve environmental disclosure through coordination, but the two 

agencies have not formally agreed to share relevant information and the 

extent of information sharing is currently limited. According to EPA, 

information sharing began informally in the mid-1980s, and in February 

1990, SEC and EPA reached an agreement under which EPA would provide 

enforcement-related data to SEC’s Division of Corporation Finance on a 

quarterly basis. As a result of the agreement, EPA began providing 

information on recently concluded cases filed under federal environmental 

laws as well as other information related to hazardous waste sites and 

facilities. EPA officials indicated that their staff also assisted SEC by (1) 

commenting on the accuracy of environmental disclosures by some 

companies and (2) training Division of Corporation Finance reviewers to 

understand the environmental statutes administered by EPA and interpret 

the enforcement data from EPA. 

Although the 1990 agreement was conceived as the basis for a formal 

memorandum of understanding between the two agencies, agency 

representatives never signed such a memorandum. While there are 

conflicting reports on when the regular transfer of information halted, 

officials from SEC and EPA agree that some problems arose because the 

volume and complexity of the data that EPA was providing were not useful 

to SEC reviewers. For example, SEC questioned the usefulness of some 

data because they were facility-specific, and SEC could not readily identify 

the parent company responsible for reporting to SEC. 

Currently, information sharing occurs less frequently and is focused on 

specific legal proceedings, such as those involving monetary sanctions for 

environmental violations. SEC officials said that their reviewers use EPA 

data only to raise “red flags” pointing them to situations in which 

companies may not be disclosing potentially material information. Once a 

reviewer identifies a potential disclosure problem, the next step is 

following up with the individual company to request information. EPA 

officials indicated that they would be willing to work with SEC to explore 

options for improving the usefulness of the data. SEC officials said that 

they were willing to work with EPA, but downplayed the need for 

additional coordination, saying that the information in EPA’s Enforcement 

and Compliance History Online database is sufficient for the purpose of 

identifying potential disclosure problems. 
Page 29 GAO-04-808 Environmental Disclosure

Experts Suggest 

Changes to 

Requirements and 

Guidance, Increased 

Oversight, and 

Nonregulatory Actions 

to Increase and 

Improve 

Environmental 

Disclosure

The experts that we surveyed generally concur with the concerns identified 

by stakeholders and offered a variety of suggestions for improving 

disclosure or, in some instances, comments about why particular proposals 

are unnecessary or unworkable.25 For the most part, the experts believe 

that the identified concerns contribute to the inadequate disclosure of 

environmental information, and a few experts identified lawsuits in which 

shareholders alleged that their ability to make investment decisions was 

impaired as a result of the concerns regarding inadequate environmental 

disclosure. (See information on shareholder suits below.) The suggestions 

we obtained fell into three broad categories: modifying disclosure 

requirements and guidance, increasing oversight and enforcement, and 

adopting nonregulatory approaches to improving disclosure. To gain the 

perspective of companies that would be affected by the suggestions, we 

contacted representatives of reporting companies, who asserted that some 

of the suggestions would not improve disclosure of environmental 

information and to some extent, might hinder the ability of investors to 

make sound investment decisions. 

Shareholder Suits Allege Inadequate Environmental Disclosure

Some Experts Suggested 

Modifying Existing 

Disclosure Requirements 

and Related Guidance

About half (13 of 30) of the experts who participated in our survey offered 

suggestions on how SEC and other standard-setting bodies could improve 

the current requirements and guidance for disclosing environmental 

information. These suggestions are summarized below along with 

contrasting views from a few of the experts we surveyed and 

representatives of reporting companies, including the American Chemistry 

25Appendix IV contains a list of the experts that participated in our survey and appendix V 

includes our questionnaire and a summary of the responses to the closed-ended questions. 

Experts identified a few shareholder lawsuits alleging that corporate securities statements 

have contained material misrepresentations or omissions concerning the companies' 

potential environmental liabilities, thus leading shareholders to purchase the companies’ 

stock at artificially inflated prices. The courts did not rule on whether the alleged failure to 

disclose actually caused whatever financial harm the shareholders may have suffered.To 

prevail in such cases, shareholders must demonstrate that (1) the company intentionally 

misled them by misstating or withholding material information about environmental risks 

or liabilities and (2) the misstatements or omissions caused the shareholders to suffer a 

financial loss. In some cases similar to those identified in our survey, the corporate 

officers reached settlements with the shareholders.
Page 30 GAO-04-808 Environmental Disclosure

Council, the Business Roundtable, the Edison Electric Institute, and the 

U.S. Business Council for Sustainable Development. 

On limiting the flexibility of existing requirements: Some experts 

suggested that SEC or the Financial Accounting Standards Board, as 

appropriate, clarify terms such as “probable,” “reasonably possible,” and 

“remote” relative to the occurrence of environmental liabilities, or require 

or recommend the use of expected value analysis in estimating the 

amounts of liabilities, as advocated by ASTM International.26 In addition, 

several experts commented on the need for more guidance on materiality, 

calling for clarification or more specific criteria. One participant suggested 

that SEC establish a presumption of materiality for environmental 

liabilities, thus shifting the burden of proving that such liabilities are not 

material to companies. In contrast, another expert commented that more 

specific guidance on estimating the amounts of liabilities would lead to 

rules not well suited for all companies and would mislead users of 

company filings by making estimates appear to be more precise than they 

really are. Company representatives made similar comments, saying that 

uncertainties about the nature and extent of environmental contamination, 

potential remediation costs, and the extent of the company’s liability all 

affect the feasibility of deriving precise estimates. Company 

representatives also objected to requiring the use of the expected value 

method of cost estimation advocated by ASTM International, saying that it 

would lead to misleading disclosures because, for example, the method 

does not allow companies to factor in contributions from other potentially 

responsible parties in estimating their own potential liabilities. Finally, 

company representatives maintained that existing guidance on materiality 

is sufficiently clear and necessarily flexible to accommodate companies’ 

individual circumstances.

On reporting existing environmental liabilities: A few experts suggested 

that SEC or the Financial Accounting Standards Board, as appropriate, 

clarify the accounting and disclosure procedures for unasserted but 

enforceable claims related to the cleanup of environmental contamination 

at current and former company facilities. This clarification would, among 

other things, specify the point at which such liabilities occur (and a 

26ASTM International is a standard-setting organization originally known as the American 

Society for Testing and Materials. Expected value analysis is a method of estimating the 

mean value of an unknown quantity, which represents a probability-weighted average over 

the range of all possible values.
Page 31 GAO-04-808 Environmental Disclosure

disclosure obligation may exist)—when the release happens or when a 

third party initiates action against the company. Representatives of 

reporting companies did not agree with this suggestion. They said that 

environmental laws require companies to study and remediate 

contaminated sites, and disclosing possible sites—based merely on their 

existence—does not advance investors’ understanding of a company’s 

economic value. Company representatives pointed to guidance from the 

Financial Accounting Standards Board, which notes that the existence of 

an environmental liability becomes determinable and the related costs 

estimable over a continuum of events and activities that help define the 

liability. Once a third party intervenes and companies learn more about the 

extent of the problem, they can make and disclose better estimates. 

On disclosing future risks: Another suggestion from the experts was that 

SEC issue guidance clarifying when certain potential environmental issues 

should be disclosed, citing, in particular, the potential impacts of global 

climate change and controls over greenhouse gas emissions. More 

specifically, one expert commented that in the case of climate change, SEC 

should issue guidance advising companies to report their internal 

assessments of the impact of complying with pending environmental 

regulations over a specified time period, including the range of possible 

actions being considered by a company, how the actions might affect the 

financial condition and operations of the company, and whether the effects 

would be material to shareholders. Company representatives and a few of 

the experts commented that it is inappropriate to single out particular 

issues, such as climate change, for disclosure or to use SEC’s disclosure 

requirements to advance the interests of particular groups. According to 

one expert, the current rules and guidance for disclosing future 

environmental risks are clear and companies know they cannot avoid 

disclosure of such risks by categorizing them as “forward-looking” 

information. Company representatives also questioned the value of 

disclosing “speculative” information to investors. Moreover, the 

representatives pointed out that such requirements could have significant 

ramifications for disclosure in general, depending on where one draws the 

line in deciding when the impact of potential legislation should be 

disclosed. 

On requiring companies to report environmental performance 

information: Five of the experts we surveyed said that SEC should require 

companies to provide information on their environmental performance 

(e.g., pollutant releases and remediation expenditures) or issue guidance 

stating that such information might be considered material by investors. In 
Page 32 GAO-04-808 Environmental Disclosure

one case, an expert suggested that SEC use the Global Reporting Initiative 

as a model for the types of environmental performance measures that 

should be disclosed.27 Some experts disagreed with proposals for reporting 

requirements involving companies’ environmental performance, saying 

that such information is publicly available outside of SEC filings. One 

expert also questioned the justification for singling out environmental 

performance as opposed to other potentially important social issues. While 

some company representatives acknowledged that environmental 

performance data and intangible assets such as environmental 

management systems might be considered important by some investors, 

they said that such information is already available to the public through 

company Web sites; special reports on environment, health, and safety 

issues; and federal and state regulatory agencies.

On changing requirements for reporting monetary sanctions and 

aggregating liabilities: Some experts believe that SEC should (1) change 

the definition of monetary sanctions to include supplemental 

environmental projects that companies fund in exchange for reduced 

sanctions so that investors have a more complete picture of companies’ 

potential costs and (2) issue guidance recommending that companies 

aggregate the estimated costs of similar liabilities before assessing 

materiality and the need for disclosure. Representatives of reporting 

companies questioned the proposed inclusion of supplemental 

environmental projects as monetary sanctions because companies are 

generally not permitted to use dollar-for-dollar offsets when they agree to a 

supplemental project. Some of the experts we surveyed commented that 

the threshold for monetary sanctions should be updated or abolished 

altogether. Company representatives also thought that the fixed thresholds 

for disclosures related to legal proceedings were outdated. They 

commented, for example, that the $100,000 threshold for monetary 

sanctions should be raised to $1 million to reflect increases in penalty 

amounts since the regulation was promulgated over 20 years ago. 

Regarding calls for aggregation of similar liabilities, one of the experts and 

some company representatives said that such a requirement would mislead 

investors by portraying a company that is one of many potentially 

27The Global Reporting Initiative develops and disseminates globally applicable 

sustainability reporting guidelines for voluntary use by organizations for reporting on the 

economic, environmental, and social dimensions of their activities, products, and services. 

Examples of environmental indicators include energy, material, and water use; greenhouse 

gas and other emissions; effluents and waste generation; use of hazardous materials; and 

recycling, pollution, waste reduction, and other environmental programs.
Page 33 GAO-04-808 Environmental Disclosure

responsible parties for several environmental remediation sites as 

equivalent to a company that is likely to be responsible for one or two 

larger cleanup sites, when the companies’ actual liabilities could differ 

significantly. Other company representatives commented that although 

aggregation of liabilities related by some common cause or probability 

seems reasonable, aggregation of any and all environmental liabilities with 

differing circumstances would be arbitrary and not very useful to investors 

in analyzing a company’s risks.

On other regulatory approaches to improving disclosure: Experts’ 

suggestions included a call for SEC to issue new guidance that focuses 

specifically on environmental disclosure as a way of underscoring its 

importance. Another suggestion was that the Public Company Accounting 

Oversight Board take action to improve procedures for evaluating the 

effectiveness of companies’ internal control policies and procedures as 

they relate to environmental matters, in connection with the annual 

management assessment of internal controls required by the 

Sarbanes-Oxley Act of 2002. Among other things, according to one expert, 

the board should issue guidance calling for independent auditors to verify 

environmental remediation liabilities during financial statement audits, 

with the assistance of specialists as necessary. Regarding the suggestion for 

guidance focusing on environmental disclosure issues, representatives of 

reporting companies said that SEC should first determine if there is a 

compliance problem and, if one exists, the agency could issue special 

guidance to highlight the importance of environmental disclosure 

requirements. Company representatives did not see a need for specific 

guidance on assessing internal controls over environmental matters. They 

commented that the Public Company Accounting Oversight Board has 

already issued a number of proposed rules for the auditing of companies’ 

internal controls, which will encompass controls for environmental 

information. 

Some Experts Called for 

Better Monitoring and 

Targeted Enforcement 

Actions to Increase 

Environmental Disclosure

A similar number (14 of 30) of the experts who participated in our survey 

had suggestions for enhancing SEC oversight of environmental disclosure 

through increased monitoring, enforcement, or coordination with EPA. 

Specifically, some experts said that SEC should review more filings in 

industries for which environmental disclosure is more likely to be a 

concern and issue more comment letters for problematic filings to force 

companies to reexamine their internal controls for the reporting of 

environmental information. Some experts also suggested that SEC put 

more emphasis on enforcing environmental disclosure requirements to (1) 
Page 34 GAO-04-808 Environmental Disclosure

establish legal precedents for adequate disclosure, (2) achieve greater 

consistency in company reporting of environmental liabilities, and (3) 

ensure that companies take seriously the reporting of environmental 

information. While the experts did not specify how SEC should increase its 

enforcement, many of those that offered suggestions believe that 

increasing the emphasis on enforcement—for example, by initiating a few 

high-profile cases—would better deter nondisclosure of important 

environmental information. Two of the experts we surveyed did not see a 

need for increasing SEC’s monitoring and enforcement. They commented 

that SEC is probably doing a reasonable job, given competing priorities and 

the lack of evidence that disclosure of material environmental information 

is inadequate. Representatives of reporting companies pointed out that the 

frequency of SEC’s reviews of annual 10-K filings and the amount of 

resources available to conduct such reviews has increased significantly as 

a result of the Sarbanes-Oxley Act of 2002.

Another suggestion from the experts was for better coordination between 

SEC and EPA and state environmental agencies to obtain information 

useful for evaluating companies’ environmental disclosures. For example, 

one expert suggested that SEC work with EPA to develop a protocol for 

using EPA data on environmental remediation liabilities as an indicator of 

whether companies are adequately reporting environmental information in 

their filings. It was also suggested that SEC develop a mechanism for 

comparing real-time information on environmental liabilities and their 

related monetary sanctions with companies’ filings. Some representatives 

of reporting companies believed that coordination between EPA and SEC is 

already occurring to the extent that SEC has access to publicly available 

databases such as the Enforcement and Compliance History Online and 

Toxics Release Inventory.28 For the most part, company representatives did 

not think increased coordination would yield much improvement in 

disclosure because many environmental regulatory agencies do not have 

expertise in financial disclosure.

28The Enforcement and Compliance History Online is a Web-based tool that integrates 

information from data systems across EPA programs and provides public access to 

monitoring, compliance, and enforcement information for approximately 800,000 

EPA-regulated facilities. The Toxics Release Inventory is another publicly accessible 

database that contains information on estimated releases of hundreds of chemicals, which 

companies report annually to EPA and the states.
Page 35 GAO-04-808 Environmental Disclosure

Some Experts Said Certain 

Nonregulatory Approaches 

Could Increase and Improve 

Environmental Disclosure

One-third of the experts that participated in our survey (10 of 30) had 

suggestions for improving environmental disclosure by nonregulatory 

means. For example, they cited several voluntary disclosure initiatives, 

such as the Global Reporting Initiative and the Carbon Disclosure Project, 

in which companies might participate to demonstrate their commitment 

toward good governance on environmental issues.29 Another potential 

vehicle for improving environmental disclosure, according to some 

experts, is secondary markets, such as insurance and financial services. If 

these markets started incorporating environmental information into their 

company assessments, then companies would be more likely to disclose 

such information to improve their relative standing. One expert suggested 

creating a public database of companies’ disclosure of environmental 

performance measures, similar to the Toxics Release Inventory database 

maintained by EPA. Such a database would allow investors to compare 

companies’ environmental performance across industries, thus creating an 

incentive for companies to compete on that basis. Finally, some experts 

cited shareholder resolutions as a vehicle for encouraging companies to 

disclose environmental information or issue reports on corporate 

environmental performance by petitioning for a proxy vote on such matters 

by the entire body of shareholders.30

Representatives of reporting companies agreed that nonregulatory 

approaches can be effective in making company management aware of 

public interest in environmental disclosure. For example, some 

representatives said that companies and trade associations have adopted 

voluntary disclosure guidelines for environmental information, although 

they also commented that projects such as the Global Reporting Initiative 

do not inform investors with broad interests. According to the American 

Chemistry Council, all of its members are required to publicly report on 

29The Carbon Disclosure Project is an organization of institutional investors representing 

assets in excess of $10 trillion. Its mission is to inform investors about the “significant risks 

and opportunities” presented by climate change and company management about 

shareholder concerns regarding the impact of such issues on company value. The project 

has written to the 500 largest companies in the world by market capitalization, asking for 

disclosure of investment-relevant information concerning their greenhouse gas emissions.

30According to statistics compiled by the Investor Responsibility Research Center, 

shareholders filed 66 petitions on environmental issues in 2003 and had filed 57 as of 

mid-April 2004. Among other things, the petitions have called for companies to report on 

their greenhouse gas emissions, how climate change will affect their operations, or their 

performance against environmental and other indicators using the reporting guidelines 

established for the Global Reporting Initiative.
Page 36 GAO-04-808 Environmental Disclosure

their environmental management systems. While company representatives 

acknowledged the growing number of socially responsible investors, 

particularly among institutional investors, they said that investment 

analysts have not demanded more information about environmental risks 

and liabilities. The representatives also commented that secondary 

markets would indeed prompt environmental disclosure if such 

information were in demand. Finally, while company representatives 

agreed that shareholder resolutions are one avenue for getting companies 

to disclose certain information, particularly information that would not be 

appropriate in SEC filings, the representatives believe that shareholders 

and other interest groups should also pursue informal discussions with 

company management. 

Conclusions Without more compelling evidence that the disclosure of environmental 

information is inadequate, the need for changes to existing disclosure 

requirements and guidance or increased monitoring and enforcement by 

SEC is unclear. SEC is already taking steps to collect information on the 

results of its reviews of company filings. As part of this process, we believe 

that SEC should ensure that it has the information it needs to allocate its 

oversight resources and determine where additional guidance might be 

warranted. In addition, because SEC’s comment letters and the company 

responses are already available to the public on a piecemeal basis as a 

result of requests under the Freedom of Information Act, we believe that 

SEC should consider making the information more readily accessible by 

creating its own electronic database available through the agency’s Web 

site. Doing so would have several benefits; it would (1) free up SEC 

resources, (2) ensure that companies and investors are informed about the 

nature and results of SEC’s oversight regarding the disclosure of 

environmental and other information important to investors, and (3) enable 

researchers to do more robust analyses of companies’ disclosures within 

and across industries. Finally, despite previous problems with the 

usefulness of EPA’s data, because environmental disclosure is one issue 

that is specifically addressed in SEC’s regulations—and is important to a 

growing number of investors—it makes sense for SEC to ensure that its 

staff is taking advantage of relevant information available from EPA.

Recommendations for 

Executive Action

To improve the tracking and transparency of information on environmental 

disclosure problems, we recommend that the Chairman, SEC, take the 
Page 37 GAO-04-808 Environmental Disclosure

following two actions, recognizing that they will also affect the amount of 

information available to SEC and the public on other disclosure issues: 

• As SEC develops its new procedures for closing memoranda following 

its reviews of company filings, take steps to ensure that key information 

from the memoranda is electronically tracked and organized in a way 

that would facilitate its analysis across multiple filings. Among other 

things, SEC should consider organizing the information so that agency 

officials can systematically determine the most frequently identified 

problem areas, analyze trends over time or within particular industries, 

and assess the need for additional guidance in certain areas. 

• Explore the creation of a searchable database of SEC comment letters 

and company responses that would be accessible to the public. 

We also recommend that the Chairman, SEC, work with the Administrator, 

EPA, to explore opportunities to take better advantage of EPA data that 

may be relevant to environmental disclosure and examine ways to improve 

its usefulness. 

Agency Comments We provided a draft of this report to SEC and EPA for review and comment. 

We received comments from officials within SEC’s Division of Corporation 

Finance and EPA’s Office of Enforcement and Compliance Assurance. (See 

app. VI for the full text of SEC’s comments.) SEC agreed with the report’s 

recommendations and is taking some actions to implement them. 

Regarding the tracking of key information from its reviews of company 

filings, SEC said that it is creating a searchable electronic database that will 

facilitate analysis across multiple filings. In addition, SEC agreed to make 

its comment letters and the company responses available to the public and, 

in late June, announced that the information will be accessible through its 

Web site, beginning with August 2004 filings. SEC also agreed to consider 

our recommendation for taking better advantage of relevant EPA data in its 

future efforts to work with EPA. EPA generally agreed with the information 

presented in the report but did not provide a letter. SEC and EPA provided 

technical comments, which we have incorporated as appropriate.

Unless you publicly announce its contents earlier, we plan no further 

distribution of this report until 30 days from the date of this letter. At that 

time, we will send copies to appropriate congressional committees; the 
Page 38 GAO-04-808 Environmental Disclosure

Chairman of SEC; the Administrator, EPA; and the Director of the Office of 

Management and Budget. We will also make copies available at no charge 

on the GAO Web site at http://www.gao.gov. 

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

Major contributors to this report are listed in appendix VII.

John B. Stephenson

Director, Natural Resources

 and Environment
Page 39 GAO-04-808 Environmental Disclosure

Appendix I

Scope and Methodology ApApenednxidexiIs

To determine key stakeholders’ views on how well SEC has defined the 

requirements for environmental disclosure, we first identified what 

environmental information companies are required to disclose. 

Specifically, we reviewed SEC’s disclosure regulations, generally accepted 

accounting principles promulgated by the Financial Accounting Standards 

Board, auditing standards issued by the AICPA, and applicable guidance 

issued by all three entities. To confirm that we had identified all relevant 

disclosure requirements and to clarify our understanding of them, we 

interviewed officials within SEC’s Division of Corporation Finance and 

Office of Chief Accountant. We met with a variety of groups that had a 

stakeholder interest in the disclosure requirements because they (1) had a 

particular interest in environmental disclosure; (2) used disclosure 

information as investors, financial analysts, or researchers; or (3) were 

involved in the disclosure process as reporters or preparers of SEC filings. 

Our stakeholder contacts included representatives of investor 

organizations, including those that identify themselves as socially 

responsible and those with general investment interests; financial services 

institutions; environmental groups, attorneys, and consultants; business 

associations; credit rating agencies; and public accounting firms.

To determine the extent to which companies are disclosing environmental 

information in their filings with SEC, we identified existing studies on 

environmental disclosure and analyzed their results and methodology. 

First, we conducted a literature search on the Internet, using the keywords 

“SEC,” “disclosure,” and “environmental,” to identify references, including 

studies, journal articles, and other material, that focused on the disclosure 

of environmental information by publicly held companies. We identified 

additional references by reviewing the bibliographies of the material from 

the initial Internet search and through contacts with study authors. Overall, 

we identified 152 references in material published from 1990 to 2003. 

To zero in on the most useful material, we established two criteria: (1) the 

reference had to be relatively recent, with a date of 1995 or later, and (2) it 

had to contain original research. After eliminating 50 references that were 

published prior to 1995 and 75 references that reviewed or summarized 

research performed by others, we were left with 27 studies that met our 

criteria. (The studies were published, presented at a conference, or 

provided by the authors during 1995 to 2003.) We reviewed each of the 

remaining 27 studies in detail and (1) assessed each study’s research 

methodology, including its data quality, research design, and analytic 

techniques and (2) summarized its major findings and conclusions. When a 

study focused on compliance with disclosure requirements, we determined 
Appendix I

Scope and Methodology

Page 40 GAO-04-808 Environmental Disclosure

whether the criteria used to assess the adequacy of companies’ disclosures 

were consistent with existing regulations, standards, and guidance. We also 

assessed the extent to which each study’s data and methods support its 

findings and conclusions. 

Overall, we eliminated 8 of the 27 studies from our analyses because they 

had severe methodological limitations or provided little or no information 

on key aspects of the study methodology. We eliminated another four 

studies because they did not address environmental disclosure in terms of 

SEC’s reporting requirements or examine the amount of environmental 

information being disclosed. The latter four studies focused entirely on 

other issues such as the impact of environmental disclosure on investor 

behavior and the relationship between environmental disclosure and 

market value. The remaining 15 studies had strong limitations, which 

should be considered in interpreting the results, but the limitations were 

not so severe as to preclude the studies’ use. Appendix III briefly 

summarizes the objectives, scope, and limitations of the 15 studies 

included in our analyses. 

To supplement our review of existing disclosure studies, we also conducted 

a limited examination of disclosures related to potential future risks, 

focusing on the impacts of potential controls on greenhouse gas emissions 

at 20 U.S. electric utilities with relatively high emissions of carbon dioxide. 

We obtained emissions data from EPA’s EGRID2002 database, using 

emissions in 2000 (the most recent data available), and identified 20 

utilities with high emissions that are also publicly traded companies 

subject to SEC disclosure requirements.1

 These companies were the AES 

Corporation; Allegheny Energy, Inc.; Ameren Corporation; American 

Electric Power Company, Inc.; CenterPoint Energy, Inc.; Cinergy 

Corporation; Dominion Resources, Inc.; DTE Energy Company; Duke 

Energy Corporation; Edison International; Entergy Corporation; 

FirstEnergy Corporation; FPL Group, Inc.; Mirant Corporation; PPL 

Corporation, Inc.; Progress Energy; Reliant Energy, Inc.; The Southern 

1

The Tennessee Valley Authority and two non-U.S. companies were among the top 20 

emitters in EPA’s database, but we excluded them from our analysis because they are not 

required to file 10-K reports. In addition, according to an EPA official, EPA makes a number 

of assumptions in allocating carbon dioxide emissions from facilities with multiple owners 

and the relative ranking of the top emitters could be affected as a result. Also, the 

measurement of carbon dioxide emissions for smaller sources involves estimates, which 

could affect the amounts by a small percentage. However, the official agreed that we had 

included companies that were among the highest emitters of carbon dioxide in our analysis.
Appendix I

Scope and Methodology

Page 41 GAO-04-808 Environmental Disclosure

Company; TXU Corporation; and Xcel Energy, Inc.2 For each company, we 

reviewed the most recent available annual and quarterly filings, namely, the 

fiscal year 2003 forms 10-K and 10-Q filings (including any such filings that 

were amended). We looked for disclosures related to the impact of 

potential controls over greenhouse gas emissions, including any discussion 

of estimated risks to the utilities’ operations or financial condition and the 

estimated cost impact. To ensure that we identified all relevant disclosures, 

we searched the documents for a number of key terms, including “global 

warming,” “climate change,” “Kyoto Protocol,” “greenhouse gases,” and 

specific elements of greenhouse gases such as “carbon dioxide.” We 

focused on the sections of the filings most likely to yield disclosures related 

to the impact of potential controls over greenhouse gas emissions, 

including Forward-Looking Information (when it was included as a 

separate section), item 1, Description of Business; item 3, Legal 

Proceedings; item 7, Management’s Discussion and Analysis of Results of 

Operations and Financial Condition; and item 8, Financial Statements and 

Supplemental Data. When a company included its annual report to 

shareholders in its filing by reference, we also reviewed that report in the 

same manner as the filing. After extracting the relevant excerpts from the 

filings, we created a table and categorized the disclosures by company and 

type of disclosure. 

To assess the adequacy of SEC’s efforts to monitor and enforce compliance 

with the disclosure requirements, we obtained information from the 

Division of Corporation Finance, which is responsible for reviewing 

companies’ filings to check their compliance with disclosure requirements, 

and the Division of Enforcement, which has authority to initiate civil or 

criminal actions to enforce the requirements. Specifically, we obtained 

information on SEC’s procedures for reviewing company filings, issuing 

comment letters, and documenting the results; reviewed relevant 

documents, including SEC’s analysis of annual filings by Fortune 500 

companies; obtained available statistics on SEC’s monitoring and 

enforcement process; and interviewed SEC reviewers responsible for 

reviewing annual filings of companies in industries with a greater 

likelihood of being affected by environmental disclosure requirements. We 

also obtained information on enforcement actions by SEC’s Division of 

Enforcement, including cases involving environmental disclosure, and met 

with officials within SEC and EPA’s Office of Enforcement and Compliance 

2

Effective April 2004, Reliant Resources changed its name to Reliant Energy, Inc.
Appendix I

Scope and Methodology

Page 42 GAO-04-808 Environmental Disclosure

Assurance to obtain information on the nature of interagency coordination 

on environmental disclosure.

To obtain suggestions on actions for increasing and improving 

environmental disclosure, we conducted a Web-based survey of 30 experts 

on environmental disclosure issues. We selected the participants from a 

larger group of 52 widely recognized experts on environmental disclosure, 

which we compiled by consulting organizations and individuals with a 

stakeholder interest in environmental disclosure, relevant literature, 

authors of reports on disclosure issues, and other sources. We also 

obtained assistance from the National Academies of Science in identifying 

experts on environmental disclosure.

In compiling our initial list of experts, we sought to achieve balance in 

terms of various areas of expertise, including environmental laws and 

regulations, accounting and auditing standards and guidance, SEC 

disclosure requirements, the disclosure interests of socially responsible 

investors, the disclosure interests of investors with general investment 

interests; and the relationship between business strategy and corporate 

governance. We also sought to achieve participation by experts from fields 

that use the filings in some way, including auditing and accounting, 

consulting, financial services, insurance, nonprofit advocacy groups, the 

legal profession, public employee pension funds, credit rating agencies, 

nonprofit research groups, and academia. Appendix IV lists the 30 experts 

who participated in our survey.3

Our questionnaire focused on concerns about SEC’s environmental 

disclosure requirements, asking the experts for their views on the concerns 

and for suggestions on how best to resolve them. To identify concerns, we 

analyzed the results of 27 recent studies about environmental disclosure;4

reviewed other relevant literature; and, as discussed earlier, interviewed 

representatives of groups with a stakeholder interest in environmental 

disclosure. In total, we identified 15 concerns, which we categorized into 

five general areas: (1) addressing uncertainty regarding the likelihood and 

amount of existing and potential liabilities related to environmental 

contamination, (2) determining whether environmental information is 

3

We initially asked 31 individuals to participate. One person declined.

4

As noted earlier, our review of existing studies on environmental disclosure included 27 

studies. However, at the time we were developing our questionnaire, we had identified only 

25 of the studies.
Appendix I

Scope and Methodology

Page 43 GAO-04-808 Environmental Disclosure

material, (3) disclosing future risks, (4) ensuring disclosure of important 

environmental information, and (5) monitoring and enforcing 

environmental disclosure. For each concern, we asked the experts about 

the extent to which they shared the concern and thought that it contributed 

to inadequate disclosure of environmental information. We also asked a 

series of questions on the impact of inadequate disclosure and ways to 

address problems related to inadequate disclosure. 

We pretested the questionnaire with five experts in Boston, Massachusetts, 

and Washington, D.C., revised it based on the feedback we received, and 

posted the final version on GAO’s survey Web site. We notified the 

participants of the availability of the questionnaire with an e-mail message, 

which contained a unique user name and password for each. The 

participants were able to log on and fill out the questionnaire but did not 

have access to the responses of others. We obtained responses from all 30 

experts for a response rate of 100 percent.

We analyzed the content of the responses given to the open-ended 

questions to identify suggestions for increasing and improving 

environmental disclosure. For each question, two coders independently 

read the responses and identified broad categories for the responses. We 

discussed these categories and reached agreement on which ones to use. 

Each coder then worked independently to classify responses into the 

categories. The coders then compared their classifications and resolved 

any differences through discussion so that there was 100 percent 

agreement. 

Finally, we discussed the experts’ suggestions with representatives of 

businesses responsible for filing reports with SEC, including industries 

such as electric utilities and chemical manufacturing in which 

environmental disclosure is more likely to be relevant. We met with the 

American Chemistry Council, the Business Roundtable, the Edison Electric 

Institute, and the U.S. Business Council for Sustainable Development to get 

their views; in addition to the staff from these associations, representatives 

from approximately 10 companies participated in the discussions.
Page 44 GAO-04-808 Environmental Disclosure

Appendix II

Principal Requirements and Guidance 

Applicable to the Disclosure of Environmental 

Information in SEC Filings ApendxiI

 Source: GAO.

Issue date Documenta

1972 Securities and Exchange Commission, Regulation S-X: Form and Content of and Requirements for Financial 

Statements, Securities Act of 1933, Securities Exchange Act of 1934, Public Utility Holding Company Act of 1935, 

Investment Company Act of 1940, Investment Advisers Act of 1940 and Energy Policy and Conservation Act of 1975,

37 Fed. Reg. 14592, codified at 17 C.F.R. Part 210.b

1975 Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 5: Accounting for 

Contingencies. Norwalk, CT: 1975.

1976 Financial Accounting Standards Board, Interpretation No. 14: Reasonable Estimation of the Amount of a Loss: An 

Interpretation of FASB Statement No. 5. Norwalk, CT: 1976.

1982 Securities and Exchange Commission, Regulation S-K: Standard Instructions for Filing Forms under Securities Act 

of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975, 47 Fed. Reg. 11401, 

codified at 17 C.F.R. Part 229.c

1989 Securities and Exchange Commission, SEC Interpretation: Management’s Discussion and Analysis of Financial 

Condition and Results of Operations; Certain Investment Company Disclosures [Release Nos. 33-6835; 34-26831; 

IC-16961; FR-36], 54 Fed. Reg. 22427.

1990 Financial Accounting Standards Board, Emerging Issues Task Force 90-8: Capitalization of Costs to Treat 

Environmental Contamination. Norwalk, CT: 1990.

1992 Financial Accounting Standards Board, Interpretation No. 39: Offsetting of Amounts Related to Certain Contracts: 

An Interpretation of Accounting Principles Board (APB) Opinion No. 10 and Financial Accounting Standards Board 

Statement No. 105. Norwalk, CT: 1992.

1993 Financial Accounting Standards Board, Emerging Issues Task Force 93-5: Accounting for Environmental Liabilities. 

Norwalk, CT: 1993.

1993 Securities and Exchange Commission, Staff Accounting Bulletin No. 92, Topic 5.Y: Accounting Disclosures Relating 

to Loss Contingencies, 58 Fed. Reg. 32843. Staff Accounting Bulletin No. 103 (listed below) amended SAB 92.

1994 American Institute of Certified Public Accountants, Statement of Position 94-6: Disclosure of Certain Significant 

Risks and Uncertainties. New York, NY: 1994.

1996 American Institute of Certified Public Accountants, Statement of Position 96-1: Environmental Remediation 

Liabilities. New York, NY: 1996.

1999 Securities and Exchange Commission, Staff Accounting Bulletin No. 99: Materiality, 64 Fed. Reg. 45150.

2001 Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 143: Accounting for Asset 

Retirement Obligations. Norwalk, CT: 2001.

2001 Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 144: Accounting for the 

Impairment or Disposal of Long-Lived Assets. Norwalk, CT: 2001.

2001 Securities and Exchange Commission, Action: Cautionary Advice Regarding Disclosure About Critical Accounting 

Policies [Release Nos. 33-8040; 34-45149; FR-60], 66 Fed. Reg. 65013.

2002 Securities and Exchange Commission, Commission Statement about Management’s Discussion and Analysis of 

Financial Condition and Results of Operations [Release Nos. 33–8056; 34–45321; FR–61], 67 Fed. Reg. 3746.

2003 Securities and Exchange Commission, Commission Guidance Regarding Management’s Discussion and Analysis of 

Financial Condition and Results of Operations [Release Nos. 33–8350; 34–48960; FR–72], 68 Fed. Reg. 75056.

2003 Securities and Exchange Commission, Staff Accounting Bulletin No. 103: Update of Codification of Staff Accounting 

Bulletins, 68 Fed. Reg. 26840.
Appendix II

Principal Requirements and Guidance 

Applicable to the Disclosure of 

Environmental Information in SEC Filings

Page 45 GAO-04-808 Environmental Disclosure

a

Some of these documents have been amended since they were first issued.

b

SEC adopted Regulation S-X in 1940 and issued a comprehensive revision in 1972. Provisions of 

Regulation S-X relevant to environmental disclosure include 17 C.F.R. §210.3-01(a), which requires 

annual submission of consolidated audited balance sheets; §210.3-02(a), which requires annual 

submission of consolidated statements of income and cash flow; and §210.4-01(a)(1), which provides 

that financial statements filed with SEC that are not prepared in accordance with generally accepted 

accounting principles will be presumed to be misleading or inaccurate.

c

In 1982, SEC consolidated all existing uniform disclosure requirements under the federal securities 

laws, including those related to environmental information, into an integrated disclosure system under 

Regulation S-K. As part of this effort, SEC included interpretive releases issued prior to 1982, such as 

those related to the disclosure of environmental compliance costs (Conclusions and Final Action on 

Rulemaking Proposals Relating to Environmental Disclosure [Release Nos. 33-5704; 34-12414]) and 

environment-related legal proceedings (Proposed Amendments to Item 5 of Regulation S-K Regarding 

the Disclosure of Certain Environmental Proceedings [Release Nos. 33-6315; 34-17762]). The 

provisions of Regulation S-K most directly relevant to environmental disclosure include 17 C.F.R. 

§229.101 (Description of Business), §229.103 (Legal Proceedings), and §229.303 (Management’s 

Discussion of Financial Condition and Results of Operations).
Page 46 GAO-04-808 Environmental Disclosure

Appendix III

Summary of Disclosure Studies Included in 

Our Analysis ApendxiI

Study Objective and scope (time frame)a Major limitationsb

Austin, Duncan and 

Amanda Sauer, Changing 

Oil: Emerging 

Environmental Risks and 

Shareholder Value in the 

Oil and Gas Industry, 

World Resources Institute, 

2002.

Objective: To assess the potential impact of various 

scenarios for (1) controls over greenhouse gas 

emissions and (2) pressures to restrict access to oil 

and gas reserves on shareholder value.

Scope: 16 oil and gas companies (forward-looking).

Small sample size within a single industry.

Estimates in study depend heavily on the accuracy 

of various assumptions.

The authors attempted to incorporate input from 

various experts into the assignment of probabilities 

to final scenarios; however, the response rates from 

these experts was quite low. The authors then 

assigned probabilities on the basis of the limited 

responses and using their best judgment.

Authors applied judgmental factors in attempting to 

distinguish different refinery product mixes. 

Barth, Mary E.; Maureen 

F. McNichols; and Peter G. 

Wilson, “Factors 

Influencing Firms’ 

Disclosure about 

Environmental Liabilities,” 

Review of Accounting 

Studies, Vol. 2 (1997): pp. 

35-64.

Objective: To identify factors that influence companies’ 

decisions to disclose information about environmental 

liabilities.

Scope: 257 companies that have a high concentration 

of Superfund exposure from four industries (1989 

through 1993).

No information on how the matching to produce 

potentially responsible party sites was done or the 

accuracy of the matching process related to the use 

of industry data files. 

Study results not generalizable.

Deis, Donald R.; Santanu 

Mitra; and Mahmud 

Hossain, “10-K Report 

and Market Pricing of 

Environmental Segment 

Information for Chemical 

Firms,” Accounting 

Enquiries, Vol. 11, No. 1, 

fall 2001/winter 2002, pp. 

1-42.

Objective: To assess the impact of environmentrelated disclosures in companies’ 10-K reports on the 

market pricing of chemical firms.

Scope: 30 public chemical companies (1994 through 

1997).

Small sample size; no discussion of extent to which 

selected companies are representative of the single 

industry. 

Study results not generalizable.

Freedman, Martin; Bikki 

Jaggi; and A.J. Stagliano, 

“Pollution Disclosures by 

Electric Utilities: An 

Evaluation at the Start of 

the First Phase of 1990 

Clean Air Act,” Sixth 

Annual Conference of the 

Greening of Industry 

Network, (1997).

Objective: To examine the extent of disclosures related 

to emissions controls required under the Clean Air Act 

Amendments of 1990. 

Scope: 38 public companies that owned 88 coal-fired 

electric utilities (1989, 1990, and 1995).

Analyses may have been affected by differences in 

collection of emissions data in 1990 and 1995.

Small size of subgroups used in modeling affected 

ability to draw meaningful conclusions and design of 

subgroups relied on authors’ judgments.

Conclusions go beyond what is supported by the 

analysis.
Appendix III

Summary of Disclosure Studies Included in 

Our Analysis

Page 47 GAO-04-808 Environmental Disclosure

Study Objective and scope (time frame)a Major limitationsb

Freedman, Martin and 

A.J. Stagliano, “Disclosure 

of Environmental Cleanup 

Costs: The Impact of the 

Superfund Act,” Advances 

in Public Interest 

Accounting, Vol. 6, (1995): 

pp. 163-176.

Objective: To examine the extent to which companies 

identified as potentially responsible parties disclosed 

information related to potential remediation liabilities in 

their 1987 Form 10-Ks.

Scope: 193 companies that were potentially liable for 

Superfund remediation costs (1987).

Criteria for assessing adequacy of disclosure not 

consistent with the requirements.

No information on how companies were identified 

for inclusion in the study or the extent to which the 

companies are representative of others. 

No description of the content analysis or steps 

taken to ensure inter-rater reliability.

Freedman, Martin and 

A.J. Stagliano, “Superfund 

Disclosures in Annual 

Accounting Reports: The 

Impact of AICPA 

Statement of Position 96-

1,” provided by authors.

Objective: To determine whether the issuance of 

additional guidance (American Institute of Certified 

Public Accountants Statement of Position No. 96-1) led 

to improved disclosure of Superfund liabilities in 

companies’ annual filings with SEC.

Scope: 137 companies identified as potentially 

responsible parties at 3 or more Superfund sites (1994 

and 1997).

Criteria for assessing adequacy of disclosure not 

consistent with the requirements.

Limited time period covered by analysis.

Use of a “disclosure index” that is not defined.

No information on data analysis techniques and 

study does not include tables.

No information on methods used to measure 

dependent variables, the statistical tests conducted, 

the results of such tests, or methods used to 

interpret the results.

Insufficient information to assess reasonableness of 

study conclusions. 

Freedman, Martin and 

A.J. Stagliano, “Political 

Pressure and 

Environmental Disclosure: 

The Case of EPA and the 

Superfund,” Research on 

Accounting Ethics, Vol. 4 

(1998): pp. 211-224.

Objective: To determine whether companies’ 

disclosures about potential Superfund liabilities 

changed as a result of EPA efforts to prompt increased 

enforcement of disclosure requirements by SEC.

Scope: 140 companies that were potentially liable for 

Superfund costs (1987, 1989, and 1990).

No justification for the particular weighting scheme 

used in study, although finding of statistical 

significance is heavily dependent on it.

Study results not generalizable.

Freedman, Martin and 

A.J. Stagliano, 

“Environmental Disclosure 

by Companies Involved in 

Initial Public Offerings,” 

Accounting, Auditing and 

Accountability Journal, 

Vol. 15, No. 1 (2002): pp. 

94-105.

Objective: To determine whether differences exist in 

the disclosure of environmental liabilities by 

companies identified as potentially responsible parties 

at Superfund sites, depending on the companies’ 

involvement in initial public offerings.

Scope: 26 companies making initial public stock 

offerings that were identified as potentially responsible 

parties under the Superfund program (1984 through 

1993).

Small sample size.

Initial sample of 45 was cut to 26 when some of the 

selected firms could not be paired with comparison 

firms; no discussion regarding the possible effects 

of reduced sample.

Possible bias introduced because matching, in 

terms of both standard industrial codes and assets, 

is very imprecise.

No information on steps taken to ensure inter-rater 

reliability of content coding.

(Continued From Previous Page)
Appendix III

Summary of Disclosure Studies Included in 

Our Analysis

Page 48 GAO-04-808 Environmental Disclosure

Study Objective and scope (time frame)a Major limitationsb

Gamble, George O.; Kathy 

Hsu; Devaun Kite; and 

Robin R. Radtke, 

“Environmental 

Disclosures in Annual 

Reports and 10Ks: An 

Examination,” Accounting 

Horizons, Vol. 9, No. 3, 

(September 1995): pp. 34-

54.

Objective: To determine the relative quality of 

disclosures over time and whether such information is 

sufficient to satisfy stakeholders’ needs.

Scope: 234 companies from 12 industries combined 

into six industry groups selected from Standard & 

Poor’s Compustat Services (1986 through 1991).

Criteria for assessing adequacy of disclosure not 

consistent with the requirements.

No information on how the companies were 

selected.

Requirement that at least six companies remain 

within an industry group could have influenced the 

analyses.

No information on steps taken to ensure inter-rater 

reliability of content coding.

Study results not generalizable.

Conclusions go beyond what is supported by the 

analysis. 

Kreuze, Jerry G.; Gale E. 

Newell; and Stephen J. 

Newell, “What Companies 

Are Reporting 

(Environmental 

Disclosures),” 

Management Accounting, 

Vol. 78, No. 1, (1996).

Objective: To examine the extent to which companies 

disclosed environmental information in their annual 

reports to shareholders.

Scope: 645 Forbes 500 corporations (1991).

Criteria for assessing adequacy of disclosure not 

consistent with the requirements.

No information on how the sample was chosen or 

the universe from which companies were selected.

Limited time period covered by analysis.

Study results not generalizable.

Conclusions go beyond what is supported by the 

analysis.

Repetto, Robert and 

Duncan Austin, Coming 

Clean: Corporate 

Disclosure of Financially 

Significant Environmental 

Risks, World Resources 

Institute, 2000.

Objective: To assess the adequacy of companies’ 

disclosure of material environmental exposures in 

accordance with SEC rules.

Scope: 13 public pulp and paper companies (1998 and 

1999).

Criteria for assessing adequacy of disclosure not 

consistent with the requirements.

Small sample size.

No information on how the companies were 

selected, the selection of experts who “identified 

environmental pressures” on firms, how authors 

identified these pressures, etc.

Estimates in study depend heavily on the accuracy 

of various assumptions.

Conclusions go beyond what is supported by the 

analysis.

(Continued From Previous Page)
Appendix III

Summary of Disclosure Studies Included in 

Our Analysis

Page 49 GAO-04-808 Environmental Disclosure

Study Objective and scope (time frame)a Major limitationsb

Repetto, Robert and 

Duncan Austin, Pure 

Profit: The Financial 

Implications of 

Environmental 

Performance, World 

Resources Institute 

(2000).

Objective: To assess the potential financial impact of 

projected environmental developments such as 

pending air and water quality regulations. The study 

also examined the extent of companies’ disclosures 

related to future environmental expenditures and 

contingencies.

Scope: 13 pulp and paper companies that will be 

significantly impacted by near future environmental 

developments (forward-looking).

Criteria for assessing adequacy of disclosure not 

consistent with the requirements.

Small sample size.

No information on how the companies were 

selected, the selection of experts who “identified 

environmental pressures” on firms, how authors 

identified these pressures, etc.

Estimates in study depend heavily on the accuracy 

of various assumptions.

Schmidt, Richard J., 

“Disclosing Past Sins: 

Financial Reporting of 

Environmental 

Remediation,” The 

National Public 

Accountant, Vol. 42, Issue 

5 (July 1997): pp. 41-45.

Objective: To examine the disclosure of environmental 

remediation liabilities in companies’ financial reports 

before and after a period in which the emphasis on 

improving such reporting increased.

Scope: 17 corporations representing 20 Superfund 

sites from EPA’s 1995 National Priorities List (1991 

and 1994).

Criteria for assessing adequacy of disclosure not 

consistent with the requirements.

Small sample size.

No information on criteria used to select sample.

No information on why study focused on 1991 and 

1994.

Used dichotomous measures that ignore gradations 

in quality and extent.

Study results are not generalizable.

Stagliano, A.J. and W. 

Darrell Walden, 

“Assessing the Quality of 

Environmental Disclosure 

Themes,” Second Asian 

Pacific Interdisciplinary 

Research in Accounting 

Conference, Osaka City 

University, Osaka, Japan, 

August 1998.

Objective: To examine the quantity and quality of 

environmental disclosures in the financial and 

nonfinancial sections of corporate annual reports.

Scope: 53 companies in four industries (1989).

Criteria for assessing adequacy of disclosure not 

consistent with the requirements.

Small sample size.

No specific information on sample selection (e.g., 

no elaboration on “leaders in their respective 

industries”).

Possible sample selection bias cannot be 

determined.

Study results not generalizable.

Stanny, Elizabeth, “Effect 

of Regulation on Changes 

in Disclosure of and 

Reserved Amounts for 

Environmental Liabilities,” 

The Journal of Financial 

Statement Analysis

(summer 1998): pp. 34-

49.

Objective: To examine the impact of SEC’s Staff 

Accounting Bulletin No. 92 on the disclosure of 

environmental remediation liabilities and associated 

reserves.

Scope: 199 nonfinancial firms from the 1994 Standard 

& Poor’s 500 index (1991, 1992, and 1993).

Criteria for assessing adequacy of disclosure not 

consistent with the requirements.

Low number of cases used in some aspects of the 

modeling raise questions of external validity and 

potentially false negative results in tests of 

significance.

No discussion of efforts to address possible issues 

of autocorrelation in the multiple regression models 

due to pooling of multiple years.

(Continued From Previous Page)
Appendix III

Summary of Disclosure Studies Included in 

Our Analysis

Page 50 GAO-04-808 Environmental Disclosure

Source: GAO.

a

The overall objectives of some studies did not focus explicitly on disclosure of environmental 

information under SEC rules. However, we included such studies in our analysis if they contained an 

assessment of the amount or adequacy of disclosure in addition to their primary focus.

b

This table combines studies with strong and very strong limitations. The column on “major limitations” 

includes some but not all of the major limitations we identified.
Page 51 GAO-04-808 Environmental Disclosure

Appendix IV

Experts Who Participated in GAO Survey ApendxiIV

Gavin Anderson GovernanceMetrix International, Inc.

Duncan Austin World Resources Institute

Constance E. Bagley Harvard Business School

Michelle Chan-Fishel Friends of the Earth

Jack Ciesielski R.G. Associates, Inc.

Holly Clack PricewaterhouseCoopers LLP

Doug Cogan Investor Responsibility Research Center

Mark A. Cohen Vanderbilt University

Andrew N. Davis LeBeouf, Lamb, Greene, and MacRae, LLP

Martin Freedman Towson University

Julie Gorte Calvert Funds

Suellen Keiner National Academy of Public Administration

Donald Kirshbaum Office of Connecticut State Treasurer

Gayle S. Koch The Brattle Group

Jerry G. Kreuze Western Michigan University

Peter Lehner Office of Attorney General, State of New York

Tim Little The Rose Foundation

Steven D. Lydenberg Domini Social Investments LLC

Thomas M. McMahon Sidley Austin Brown & Wood LLP

Dennis M. Patten Illinois State University

Ken Radigan AIG Environmental

Robert Repetto Stratus Consulting, Inc.

Amy Ripepi Financial Reporting Advisors LLC

Greg Rogers Guida, Slavich & Flores, P.C.

Solomon Samson Standard & Poor’s

Christopher Scudellari Ernst & Young

Elizabeth Stanny Sonoma State University

William L. Thomas Pillsbury Winthrop LLP

Martin Whittaker Innovest Strategic Value Advisors, Inc.

Cynthia Williams University of Illinois College of Law
Page 52 GAO-04-808 Environmental Disclosure

Appendix V

Survey Questions and Results ApendxiV

The Web-based questionnaire included six sections. The first five sections began with an issue 

statement and background material for the questions followed by a series of closed-ended 

(radio button) questions and then, one or more open-ended (text box) questions. The last 

section also used a combination of closed-ended and open-ended questions, included general 

questions about the impact of inadequate disclosure, and asked for suggestions on ways to 

resolve concerns about disclosure. 

Section I. Addressing Uncertainty Regarding the Likelihood and Amount of Existing 

and Potential Liabilities Related to Environmental Contamination 

Issue Statement: Companies may not be providing enough information about environmental 

liabilities in their financial statements because of uncertainties about (1) whether they have a 

liability that must be disclosed and (2) if so, how to estimate the amount of the liability. 

Without more specific standards and guidance, some companies conclude that they have 

nothing to disclose, cannot calculate an estimate, or default to a minimum amount rather than 

develop a best estimate. 

Background: Under generally accepted accounting principles, companies must report 

environmental and other types of liabilities in their financial statements if such liabilities are 

“reasonably likely” to occur and the amounts are “reasonably estimable.” (In addition to 

liabilities, losses may take the form of permanent reductions in asset value.) SEC, the Financial 

Accounting Standards Board, and the American Institute of Certified Public Accountants have 

all issued standards and guidance to assist companies (and their independent auditors) in 

making determinations about when and what amount to disclose. 

The standards and guidance on when to disclose a liability consider a range of probabilities 

that the liability will occur—from “likely” to “remote”—and provide some benchmarks by 

which companies can judge the likelihood of a liability resulting from environmental 

contamination (for example, notification by the Environmental Protection Agency that they 

have been identified as a responsible party at a hazardous waste site). 

The standards and guidance on what amount to disclose specify the cost elements that should 

be included in an estimate and require companies to use the best information currently 

available. In addition, the guidance helps companies determine an appropriate amount to 

disclose if they estimate that the liability will fall within a particular dollar range. 
Appendix V

Survey Questions and Results

Page 53 GAO-04-808 Environmental Disclosure

Concern #1: The guidance on assessing the likelihood of an environmental liability 

and determining when it must be disclosed is not sufficiently clear. For example, 

opinions vary on whether a disclosure obligation exists at the time the environmental 

contamination occurs or the point at which a regulatory agency (or some other third 

party) has taken action against a company to force a cleanup. 

Q1. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 4 13.33

Probably no 2 6.67

Uncertain 0 0.0

Probably yes 8 26.67

Definitely yes 16 53.33

No basis to judge 0 0.0

No answer 0 0.0

Q2. Does the lack of clear guidance for assessing the likelihood of an environmental 

liability contribute to inadequate disclosure of environmental information? 

Response categories Number of respondents Percent of respondents

Definitely no 3 10.00

Probably no 1 3.33

Uncertain 0 0.0

Probably yes 10 33.33

Definitely yes 15 50.00

No basis to judge 1 3.33

No answer 0 0.0
Appendix V

Survey Questions and Results

Page 54 GAO-04-808 Environmental Disclosure

Concern #2: The standards and guidance applicable to estimating the amount of environmental 

liabilities are not specific enough to help companies deal with the uncertainties inherent in 

deriving the estimates. Such uncertainties include the extent to which cleanup costs might be 

shared with other responsible parties or offset by insurance recoveries, the extent of 

contamination and required cleanup, the state of the art of available cleanup technology, and the 

stringency of environmental cleanup standards. 

Q3. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 3 10.00

Probably no 3 10.00

Uncertain 2 6.67

Probably yes 6 20.00

Definitely yes 16 53.33

No basis to judge 0 0.0

No answer 0 0.0

Q4. Does the lack of specific standards and guidance for estimating the amount of 

environmental liabilities contribute to inadequate disclosure of environmental information? 

Response categories Number of respondents Percent of respondents

Definitely no 1 3.33

Probably no 6 20.00

Uncertain 1 3.33

Probably yes 9 30.00

Definitely yes 13 43.33

No basis to judge 0 0.0

No answer 0 0.0

Q5. Please provide any additional comments you have, or further elaboration on your 

responses for Section I, “Addressing Uncertainty Regarding the Likelihood and Amount of 

Existing and Potential Liabilities Related to Environmental Contamination,” in the space below. 

Response categories Number of respondents Percent of respondents

Did not write any comments 3 10.00

Wrote comments 27 90.00
Appendix V

Survey Questions and Results

Page 55 GAO-04-808 Environmental Disclosure

Section II: Determining Whether Environmental Information is Material 

Issue Statement: Companies may not be providing environmental information in their SEC 

filings that would be considered material by “reasonable investors.” 

Background: Applicable regulations and guidance generally define materiality in terms of 

information that is important to investors’ investment decisions or necessary for the fair 

presentation of the financial statements in accordance with generally accepted accounting 

principles. For example, SEC’s regulations define material information as “matters about 

which an average prudent investor ought reasonably to be informed.” As another example, 

guidance issued by the Financial Accounting Standards Board states that the omission or 

misstatement of an item in a financial report is material if, in the light of surrounding 

circumstances, the magnitude of the item is such that it is probable that the judgment of a 

reasonable person relying on the report would have been changed or influenced by the 

inclusion or correction of the item. 

SEC’s regulations and guidance generally do not establish numeric thresholds for determining 

materiality. However, SEC Regulation S-K, item 103 “Legal Proceedings” contains two 

exceptions: (1) losses resulting from any administrative or judicial proceeding involving 

federal, state, or local environmental laws, if the amount of the losses exceeds 10 percent of 

the company’s current assets and (2) monetary sanctions greater than $100,000, if a 

governmental authority is a party to the proceeding. 

Concern #3: The regulations and guidance issued by SEC and other standardsetting bodies are not specific enough to ensure adequate disclosure of material 

information, environmental or otherwise. For example, the regulations and guidance 

lack any metrics that could serve as minimum thresholds for materiality and do not 

sufficiently emphasize intangible, nonquantifiable factors in materiality 

determinations (for example, the impact of environmental contamination on a 

company's reputation). 

Q6. Do you share this concern? 

Response categories Number of respondents Percent of respondents 

Definitely no 2 6.67 

Probably no 4 13.33 

Uncertain 0 0.0 

Probably yes 6 20.00 

Definitely yes 18 60.00 

No basis to judge 0 0.0 

No answer 0 0.0 
Appendix V

Survey Questions and Results

Page 56 GAO-04-808 Environmental Disclosure

Q7. Does the lack of specific regulations and guidance for determining materiality 

contribute to inadequate disclosure of environmental information? 

Response categories Number of respondents Percent of respondents 

Definitely no 2 6.67 

Probably no 4 13.33 

Uncertain 0 0.0 

Probably yes 6 20.00 

Definitely yes 18 60.00 

No basis to judge 0 0.0 

No answer 0 0.0 

Concern #4: SEC's regulations do not require companies to aggregate the estimated 

costs of potential environmental liabilities (for example, multiple hazardous waste 

sites) when assessing materiality. 

Q8. Do you share this concern? 

Response categories Number of respondents Percent of respondents 

Definitely no 2 6.67 

Probably no 3 10.00 

Uncertain 2 6.67 

Probably yes 4 13.33 

Definitely yes 19 63.33 

No basis to judge 0 0.0 

No answer 0 0.0 

Q9. Does the lack of a requirement to aggregate the estimated costs of potential 

environmental liabilities contribute to inadequate disclosure of environmental 

information Percent of respondents? 

Response categories Number of respondents Percent of respondents 

Definitely no 1 3.33 

Probably no 3 10.00 

Uncertain 1 3.33 

Probably yes 8 26.67 

Definitely yes 17 56.67 

No basis to judge 0 0.0 

No answer 0 0.0 
Appendix V

Survey Questions and Results

Page 57 GAO-04-808 Environmental Disclosure

Concern #5: The $100,000 threshold for monetary sanctions may be outdated. For 

example, the threshold has not been adjusted since it was established in 1981. 

Q10. Do you share this concern? 

Response categories Number of respondents Percent of respondents 

Definitely no 6 20.00 

Probably no 8 26.67 

Uncertain 3 10.00 

Probably yes 7 23.33 

Definitely yes 5 16.67 

No basis to judge 1 3.33 

No answer 0 0.0 

Q11. Does the outdated monetary threshold contribute to inadequate disclosure of 

environmental information? 

Response categories Number of respondents Percent of respondents 

Definitely no 9 30.00 

Probably no 13 43.33 

Uncertain 4 13.33 

Probably yes 2 6.67 

Definitely yes 1 3.33 

No basis to judge 1 3.33 

No answer 0 0.0 
Appendix V

Survey Questions and Results

Page 58 GAO-04-808 Environmental Disclosure

Concern #6: The $100,000 threshold for monetary sanctions may be too restrictive. 

For example, certain costs related to the sanctions, such as the costs associated with 

(1) environmental remediation and (2) supplemental environmental projects conducted 

in lieu of paying sanctions, are not counted in determining whether the threshold has 

been met. 

Q12. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 3 10.00

Probably no 6 20.00

Uncertain 1 3.33

Probably yes 8 26.67

Definitely yes 12 40.00

No basis to judge 0 0.0

No answer 0 0.0

Q13. Does the too restrictive definition of monetary sanction contribute to inadequate 

disclosure of environmental information? 

Response categories Number of respondents Percent of respondents

Definitely no 4 13.33

Probably no 4 13.33

Uncertain 4 13.33

Probably yes 8 26.67

Definitely yes 10 33.33

No basis to judge 0 0.0

No answer 0 0.0

Q14. Please provide any additional comments you have, or further elaboration on 

your responses for Section II, “Determining Whether Environmental Information is 

Material,” in the space below. 

Response categories Number of respondents Percent of respondents

Did not write any comments 5 16.67

Wrote comments 25 83.33
Appendix V

Survey Questions and Results

Page 59 GAO-04-808 Environmental Disclosure

Section III: Disclosing Future Environmental Risks 

Issue Statement: Companies may not be providing enough information on potentially 

significant environmental problems or regulatory initiatives that could pose a future financial 

risk.

Background: SEC’s regulations and guidance categorize companies’ disclosure of information 

regarding their future condition, including environmental risks, in two different ways. SEC 

Regulation S-K, item 303, “Management Discussion and Analysis” requires companies to 

discuss in their filings with SEC any known material trends, events, and uncertainties that 

would cause the companies’ liquidity, capital resources, and results of operations, as reported, 

to not be indicative of future operating results or financial condition. On the other hand, SEC’s 

instructions for this requirement encourage, but do not require, companies to discuss forwardlooking information in their filings. According to SEC, reporting forward-looking information 

involves anticipating a future trend or event, or anticipating a less predictable impact of a 

known event, trend or uncertainty.

Concern #7: SEC's regulations and guidance do not clearly distinguish between 

“known information that might impact future operating results” and “forward-looking 

information.” 

Q15. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 1 3.33

Probably no 6 20.00

Uncertain 5 16.67

Probably yes 10 33.33

Definitely yes 8 26.67

No basis to judge 0 0.0

No answer 0 0.0

Q16. Does the lack of a clear distinction between “known information that might impact 

future operating results” and “forward-looking information” contribute to inadequate 

disclosure of environmental information? 

Response categories Number of respondents Percent of respondents

Definitely no 1 3.33

Probably no 6 20.00

Uncertain 6 20.00

Probably yes 13 43.33

Definitely yes 4 13.33

No basis to judge 0 0.0

No answer 0 0.0
Appendix V

Survey Questions and Results

Page 60 GAO-04-808 Environmental Disclosure

Concern #8: SEC's regulations and guidance do not specify how far into the future 

companies should look in identifying and discussing “known” or “forward-looking” 

information (including information on environmental risks) and the potential impacts of 

such information. 

Q17. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 2 6.67

Probably no 2 6.67

Uncertain 3 10.00

Probably yes 12 40.00

Definitely yes 11 36.67

No basis to judge 0 0.0

No answer 0 0.0

Q18. Does the lack of specific regulations and guidance on the timeframes for “known” 

and “forward-looking” information lead to inadequate disclosure of environmental 

information? 

Response categories Number of respondents Percent of respondents

Definitely no 2 6.67

Probably no 2 6.67

Uncertain 3 10.00

Probably yes 13 43.33

Definitely yes 10 33.33

No basis to judge 0 0.0

No answer 0 0.0

Q19. Please provide any additional comments you have, or further elaboration on your 

responses for Section III, “Disclosing Future Environmental Risks,” in the space below. 

Response categories Number of respondents Percent of respondents

Did not write any 

comments 

7 23.33

Wrote comments 23 76.67
Appendix V

Survey Questions and Results

Page 61 GAO-04-808 Environmental Disclosure

Section IV: Ensuring Disclosure of Important Environmental Information 

Issue Statement: Existing standards and guidance from SEC, the Financial Accounting 

Standards Board, and the American Institute of Certified Public Accountants do not require 

companies to disclose certain types of information that some investors believe is important for 

making investment decisions. 

Background: According to SEC, the existing disclosure requirements focus on providing a 

reasonable investor with sufficient information to assess the financial condition of a company. 

Regarding environmental information, the standards and guidance issued by SEC and other 

authorities require companies to disclose in their filings (1) material environmental liabilities 

and other losses, (2) the impact of certain material trends, events, and uncertainties—including 

those related to environmental risks—on the companies’ capital expenditures and results of 

operations, and (3) certain legal proceedings involving environmental matters. 

Organizations that promote socially conscious investments argue that SEC should expand its 

requirements for corporate disclosure of environmental information because these 

organizations believe such information could be material to many investors and serves as a 

proxy for effective corporate governance. In response to litigation during the 1970s, SEC 

concluded that it is authorized and required by the National Environmental Policy Act to 

consider the promotion of environmental protection as a factor in exercising its rulemaking 

authority. At that time, however, SEC argued that relevant statutes and legislative history 

suggested that its disclosure authority be used to require the dissemination of “economically 

significant” information. SEC also noted the lack of reliable evidence regarding the extent of 

investor interest in expanded environmental disclosure. 

Concern #9: Companies are not required to disclose information about their 

environmental assets (for example, emission trading credits) and environmental 

performance. A growing body of “socially conscious” investors want such information 

because they believe many investors may find this information material or because it 

indicates the effectiveness of corporate management. 

Q20. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 3 10.00

Probably no 4 13.33

Uncertain 4 13.33

Probably yes 3 10.00

Definitely yes 16 53.33

No basis to judge 0 0.0

No answer 0 0.0
Appendix V

Survey Questions and Results

Page 62 GAO-04-808 Environmental Disclosure

Q21. How important is it for investors to have information on companies' environmental 

assets and environmental performance when making investment decisions? 

Response categories Number of respondents Percent of respondents

Not important 0 0.0

Slightly important 3 10.00

Moderately important 8 26.67

Greatly important 5 16.67

Extremely important 10 33.33

No basis to judge 3 10.00

No answer 1 3.33

Concern #10: Companies are not required to disclose quantitative information on the 

total number of their environmental remediation sites, related claims, or the associated 

costs. 

Q22. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 3 10.00

Probably no 2 6.67

Uncertain 1 3.33

Probably yes 6 20.00

Definitely yes 18 60.00

No basis to judge 0 0.0

No answer 0 0.0

Q23. How important is it for investors to have quantitative information about the total 

number of environmental remediation sites, related claims, or the associated costs 

when making investment decisions? 

Response categories Number of respondents Percent of respondents

Not important 0 0.0

Slightly important 2 6.67

Moderately important 9 30.00

Greatly important 7 23.33

Extremely important 10 33.33

No basis to judge 2 6.67

No answer 0 0.0
Appendix V

Survey Questions and Results

Page 63 GAO-04-808 Environmental Disclosure

Q24. Please provide any additional comments you have, or further elaboration on your 

responses for Section IV, “Ensuring Disclosure of Important Environmental 

Information,” in the space below. 

Response categories Number of respondents Percent of respondents

Did not write any 

comments 

7 23.33

Wrote comments 23 76.67
Appendix V

Survey Questions and Results

Page 64 GAO-04-808 Environmental Disclosure

Section V: Monitoring and Enforcing Environmental Disclosure 

Issue Statement: Companies’ management, their internal accountants and independent 

auditors, and reviewers at SEC may not be adequately fulfilling their responsibilities for 

ensuring that companies properly disclose material information, including environmental 

information. 

Background: In terms of environmental disclosure, companies’ managers are responsible for 

establishing effective internal controls to gather and report information about environmental 

liabilities and other losses. Companies’ internal accountants are responsible for recording and 

reporting transactions, including those related to environmental liabilities, using generally 

accepted accounting principles promulgated by the Financial Accounting Standards Board. 

Independent auditors attest to whether a company has properly accounted for environmental 

liabilities, actual or contingent, and other losses related to environmental contamination, in 

accordance with auditing standards and guidance from the American Institute of Certified 

Public Accountants and SEC’s regulations and guidance. To ensure that investors are 

protected, SEC staff review company filings to determine if they comply with SEC’s disclosure 

requirements and take action if necessary. In fulfilling its monitoring and enforcement role, 

SEC has a variety of options available, ranging from making inquiries to issuing comment 

letters to taking legal action. 

Concern #11: Companies' internal controls are not adequate to ensure that 

environmental liabilities and other losses are brought to management's attention and 

reported in companies' financial statements as appropriate. 

Q25. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 1 3.33

Probably no 6 20.00

Uncertain 2 6.67

Probably yes 7 23.33

Definitely yes 9 30.00

No basis to judge 4 13.33

No answer 1 3.33
Appendix V

Survey Questions and Results

Page 65 GAO-04-808 Environmental Disclosure

Q26. Do weak internal controls within companies contribute to inadequate disclosure 

of environmental information? 

Response categories Number of respondents Percent of respondents

Definitely no 1 3.33

Probably no 4 13.33

Uncertain 2 6.67

Probably yes 7 23.33

Definitely yes 12 40.00

No basis to judge 3 10.00

No answer 1 3.33

Concern #12: Companies' internal accountants may not be making an adequate effort 

to identify and appropriately report all environmental liabilities and other losses in the 

companies' financial statements. 

Q27. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 0 0.0

Probably no 4 13.33

Uncertain 2 6.67

Probably yes 10 33.33

Definitely yes 9 30.00

No basis to judge 4 13.33

No answer 1 3.33

Q28. Does insufficient effort on the part of internal accountants contribute to 

inadequate disclosure of environmental information? 

Response categories Number of respondents Percent of respondents

Definitely no 0 0.0

Probably no 4 13.33

Uncertain 1 3.33

Probably yes 10 33.33

Definitely yes 9 30.00

No basis to judge 4 13.33

No answer 2 6.67
Appendix V

Survey Questions and Results

Page 66 GAO-04-808 Environmental Disclosure

Concern #13: Independent auditors may not be exercising “due professional care” in 

their efforts to verify the accuracy and completeness of information on environmental 

liabilities and other losses that companies report in their financial statements. 

Q29. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 1 3.33

Probably no 3 10.00

Uncertain 5 16.67

Probably yes 8 26.67

Definitely yes 9 30.00

No basis to judge 4 13.33

No answer 0 0.0

Q30. Does the lack of “due professional care” by independent auditors contribute to 

inadequate disclosure of environmental information? 

Response categories Number of respondents Percent of respondents

Definitely no 0 0.0

Probably no 4 13.33

Uncertain 3 10.00

Probably yes 12 40.00

Definitely yes 7 23.33

No basis to judge 3 10.00

No answer 1 3.33
Appendix V

Survey Questions and Results

Page 67 GAO-04-808 Environmental Disclosure

Concern #14: SEC's monitoring and enforcement activities related to 

environmental disclosure are limited. For example, SEC infrequently conducts full 

reviews of companies' periodic filings and, in particular, rarely focuses on 

environmental disclosure. Enforcement actions related to environmental disclosure 

are also rare. 

Q31. Do you share this concern? 

Response categories Number of respondents Percent of respondents 

Definitely no 0 0.0 

Probably no 2 6.67 

Uncertain 1 3.33 

Probably yes 3 10.00 

Definitely yes 23 76.67 

No basis to judge 1 3.33 

No answer 0 0.0 

Q32. Do SEC's limited monitoring and enforcement activities contribute to 

inadequate disclosure of environmental information? 

Response categories Number of respondents Percent of respondents 

Definitely no 0 0.0 

Probably no 1 3.33 

Uncertain 2 6.67 

Probably yes 6 20.00 

Definitely yes 20 66.67 

No basis to judge 1 3.33 

No answer 0 0.0 
Appendix V

Survey Questions and Results

Page 68 GAO-04-808 Environmental Disclosure

Concern #15: SEC is not effectively using EPA's enforcement data or otherwise 

coordinating with EPA. 

Q33. Do you share this concern? 

Response categories Number of respondents Percent of respondents

Definitely no 0 0.0

Probably no 0 0.0

Uncertain 1 3.33

Probably yes 11 36.67

Definitely yes 12 40.00

No basis to judge 6 20.00

No answer 0 0.0

Q34. Does the ineffective coordination with EPA contribute to inadequate disclosure 

of environmental information? 

Response categories Number of respondents Percent of respondents

Definitely no 0 0.0

Probably no 0 0.0

Uncertain 1 3.33

Probably yes 12 40.00

Definitely yes 11 36.67

No basis to judge 6 20.00

No answer 0 0.0

Q35. Please provide any additional comments you have, or further elaboration on 

your responses for Section V, “Monitoring and Enforcing Environmental Disclosure,” in 

the space below. 

Response categories Number of respondents Percent of respondents

Did not write any 

comments 

5 16.67

Wrote comments 25 83.33
Appendix V

Survey Questions and Results

Page 69 GAO-04-808 Environmental Disclosure

Section VI: Additional Concerns, Impact, and Recommendations 

This questionnaire has identified a number of concerns that may contribute to inadequate 

disclosure of environmental liabilities or other losses. This section asks you to describe any 

additional concerns you may have. In addition, it asks about the impact of inadequate 

environmental disclosure on investors and how you would address inadequate disclosure. 

Q36. Please describe any other significant concerns that contribute to inadequate 

disclosure of environmental liabilities or losses. 

Response categories Number of respondents Percent of respondents 

Did not write any 

comments 

9 30.00 

Wrote comments 21 70.00 

Q37. To what extent, if at all, does inadequate disclosure of environmental 

information hinder investors' ability to assess the overall financial condition of a 

company? 

Response categories Number of respondents Percent of respondents 

Does not hinder 0 0.0 

Slightly hinders 2 6.67 

Moderately hinders 17 56.67 

Greatly hinders 8 26.67 

No basis to judge 0 0.0 

No answer 3 10.00 

Q38. To what extent, if at all, does inadequate disclosure of environmental 

information hinder investors' ability to assess the overall future risks that a company 

faces?

Response categories Number of respondents Percent of respondents 

Does not hinder 0 0.0 

Slightly hinders 1 3.33 

Moderately hinders 13 43.33 

Greatly hinders 13 43.33 

No basis to judge 0 0.0 

No answer 3 10.00 
Appendix V

Survey Questions and Results

Page 70 GAO-04-808 Environmental Disclosure

Q39. To what extent, if at all, does inadequate disclosure of environmental information 

hinder investors' ability to assess other aspects of a company's overall performance (for 

example, corporate governance) that determine whether the company is a good 

investment? 

Response categories Number of respondents Percent of respondents

Does not hinder 0 0.0

Slightly hinders 4 13.33

Moderately hinders 14 46.67

Greatly hinders 10 33.33

No basis to judge 0 0.0

No answer 2 6.67

Q40. To what extent, if at all, does inadequate disclosure of environmental information 

hinder investors' ability to compare the overall performance of companies within an 

industry? 

Response categories Number of respondents Percent of respondents

Does not hinder 0 0.0

Slightly hinders 1 3.33

Moderately hinders 14 46.67

Greatly hinders 12 40.00

No basis to judge 0 0.0

No answer 3 10.00

Q41. If you are aware of any specific examples in which the ability of investors to make 

investment decisions was impaired as a result of the issues and concerns identified in 

this questionnaire, please describe them here. It would be helpful to us if, in your 

response, you could link each example to a specific issue or concern. 

Response categories Number of respondents Percent of respondents

Did not write any 

comments 

12 40.00

Wrote comments 18 60.00
Appendix V

Survey Questions and Results

Page 71 GAO-04-808 Environmental Disclosure

Q42. How could problems related to inadequate disclosure be addressed? In your 

answer, consider what entities would be the most effective or appropriate vehicle for 

addressing the problems, including: 

1) SEC; 

2) other governmental entities, such as other federal agencies and the Congress; and 

3) nongovernmental entities, such as the Financial Accounting Standards Board or 

shareholder or public interest groups. 

It would be helpful to us if, in your response, you could link each example to a specific 

issue or concern. 

Response categories Number of respondents Percent of respondents

Did not write any 

comments 

6 20.00

Wrote comments 24 80.00

Q43. Please provide any additional comments you have, or further elaboration on 

your responses for Section VI, “Additional Concerns, Impact, and Recommendations,” 

in the space below. 

Response categories Number of respondents Percent of respondents

Did not write any 

comments 

17 56.67

Wrote comments 13 43.33
Page 72 GAO-04-808 Environmental Disclosure

Appendix VI

Comments from the Securities and Exchange 

Commission ApendxiVI
Appendix VI

Comments from the Securities and Exchange 

Commission

Page 73 GAO-04-808 Environmental Disclosure
Page 74 GAO-04-808 Environmental Disclosure

Appendix VII

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Ellen Crocker, (617) 788-0580

Les Mahagan, (617) 788-0517

Staff 

Acknowledgments

In addition to the individuals named above, Kate Bittinger, Mark Braza, 

Stephen Cleary, Evan Gilman, Kevin Jackson, Rich Johnson, Tom Melito, 

Lynn Musser, Cynthia Norris, and Judy Pagano made key contributions to 

this report.

(360299)
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