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. 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. 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. 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 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. 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. 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. 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 statements. 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.” 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 uncertainty. 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.” 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.