FOR IMMEDIATE RELEASE CONTACT: Nadia Khatchadourian, 202-478-6187 August 21, 2002
“SEC MUST ENFORCE ENVIRONMENTAL DISCLOSURE LAW,” URGES CITIZEN PETITION Rose Foundation Report Encourages Investment Managers to Push for Disclosure
(WASHINGTON, DC) – The Rose Foundation For Communities & the Environment today filed a petition with the Securities and Exchange Commission (SEC) demanding that the SEC comply with its own regulations requiring publicly traded companies to disclose environmental liabilities to their shareholders. The push for enforcement of environmental liability disclosure was accompanied by a supporting letter from several of the United States’ largest and most influential charitable foundations representing over $3 billion in combined assets including the Richard & Rhoda Goldman Fund, Rockefeller Family Fund and the Surdna and San Francisco Foundations. Several investment houses including Calvert, Domini, Walden and Citizens Funds with assets of over $13 billion also support enforcement. The petition comes on the heels of widespread calls for greater social and environmental disclosure from the Social Investment Forum and representatives of the $2 trillion socially responsible investment industry.
To support the petition, the Foundation also released the report, The Environmental Fiduciary: The Case for Incorporating Environmental Factors Into Portfolio Management Practices, which documents that environmental risk and liabilities can be a tremendous drag on shareholder value while pro-active corporate environmental initiatives can result in significant savings and improvements in shareholder value. The report calls on investment managers to insist on disclosure of financially material environmental risks since it is crucial in allowing markets to accurately price environmental risk, analyze competitive posture, and forecast corporate growth potential.
“The risk to investors of failing to account for environmental costs was clearly demonstrated when the deal engineered by then-CEO Dick Cheney of Halliburton to acquire Dresser Industries was followed by the belated disclosure of huge legal bills pending from people injured by Dresser-made asbestos products,” said Tim Little, co-founder of the Rose Foundation. “Although these liabilities were not identified or forecast by Halliburton at the time of the acquisition in 1998, some analysts now estimate that they are costing Halliburton $8 - $9 billion in market value relative to similar companies that do not face asbestos liabilities. Despite the recent accounting reform prompted by the Enron and Worldcom scandals, American investors are still at risk to lose their hard earned savings because corporations cook their books by keeping environmental costs off the balance sheet.”
Little also noted that Halliburton had shed 18,000 jobs during that same period. “Tardy disclosure hurt Halliburton investors on Wall Street, and it hurt a lot of people on Main Street too,” Little said.
The report highlights the case of US Liquids. When it was revealed that its Detroit, Michigan facility had illegally dumped cancer-causing hazardous waste into the sewer system, the company’s stock dropped 58% in one week, and it suffered a 111% drop in annual income.
“When costs are hidden, it’s the investors who wind up paying,” asserted Susannah Goodman, co-author of the Rose Foundation report. “The SEC must enforce their own rules and require corporations to be honest with their shareholders.”
The petition also encourages the SEC to strengthen environmental reporting through the adoption of specific guidelines for estimating and reporting environmental risk developed by the American Society for Testing and Materials.
Although SEC Regulation S-K item 103 requires disclosure of financially significant issues, both a 1998 EPA study and a 1993 study by the General Accounting Office found that companies significantly underreport environmental liabilities.
In addition to making the case for strong SEC enforcement, The Environmental Fiduciary report urges fiduciaries who are responsible for state pension funds, foundations, endowments and charitable trusts to incorporate environmental factors into their portfolio management policies. In addition to more standard measures of corporate performance such as market share and quality of management, environmental performance also has a significant bearing on corporate growth potential. Among other examples, the report discusses the affirmative duty of all fiduciaries to address macroeconomic risks such as global climate change – estimated to cost the U.S. economy $68 billion annually by 2050. “You don't have to be an environmentalist to be concerned about portfolio risk of this magnitude,” said Little.
“Prudent fiduciaries, responsible for millions of dollars of shareholder money, need to take affirmative steps to reduce environmental risk and unlock environmental value. They should not only insist that their portfolio companies disclose environmental risks and liabilities, they can proactively engage with the companies they own to encourage strong environmental performance,” said Little.
Copies of the petition to the SEC, the 73-page report, letters of support to the petition and a fact sheet on the Rose Foundation can be downloaded from www.rosefdn.org
The Rose Foundation for Communities and the Environment was founded by Jill Ratner and Tim Little in 1992. The Foundation is based upon the principle that environmental protection and community regeneration must go hand in hand and are inextricably linked to a healthy economy.