The Rising
AEP's Buonaiuto also favors a straightforward approach to disclosures. The finance executive says that claiming that information is too abundant or complicated to present to investors is no reason to omit information from filings. "It's incumbent upon the corporation to find a way to disclose complex information in a meaningful way," contends Buonaiuto.

At the same time, Buonaiuto doesn't think the FASB or SEC rules need clarification. Rather, he thinks companies can bridge the disclosure gap by thoroughly grasping their own environmental liabilities, then judiciously applying the appropriate accounting rules.

McGladrey & Pullen's Hanson says the challenge is to strike a balance in the 10-K between too much and too little information about a company's pollution exposures. He explains that if financial statements are weighted down with frivolous information, the document becomes incomprehensible and irrelevant. Yet if you ask a user of financial statements what they would want to give up, "they invariably say, nothing."

Hanson, however, shuns the notion of bright-line environmental accounting rules. He likes to cite advice given to him by SEC staffers: a two-page, forthright, numerically uncluttered explanation of a complex issue is worth more than 25 pages of meaningless facts and figures.

In light of the Sarbanes-Oxley Act's apparent mandates of transparency and fair representation in financial reporting, it would seem that the Rose Foundation petition might have garnered a mainstream following. That hasn't happened yet. The issue "has yet to generate a groundswell of support," notes Doug Cogan, deputy director of social issues at the Investor Responsibility Research Council, one of the 30 experts the GAO polled for its study.

However, Cogan sees some headway being made. For instance, sell-side analysts who traditionally have paid little attention to potential environmental liabilities — with the exception of the long-term effects of asbestos litigation — are putting pollution disclosures on their priority list. Recently, officials from 11 international brokerage houses, including Goldman Sachs, ABN AMRO Equities, Deutsche Bank, HSBC, Nikko-Citigroup Japan, and WestLB, noted that their sell-side analysts consider "social, environmental, and corporate governance issues ... relevant to long-term shareholder value."

What's more, on Capitol Hill, senators Jon Corzine (D-N.J.), John McCain (R-Ariz.) Joe Lieberman (D-Conn.), and other lawmakers held a reception for the GAO report at a symposium called "Coming Clean: Corporate Disclosure of Environmental Issues in Financial Statements," which gave a platform to the SEC, the Environmental Protection Agency, the Rose Foundation, and SRIs.

Gimme Credit's Adams says disclosures related to environmental liabilities have always been important to credit analysts, but he stresses that such information is meaningful to him only insofar as it records the liabilities' effects on future free cash flow. As a result, "speculative numbers [such as overblown aggregate estimates] do nothing but make 10-Ks weigh more." Adams, who covers the utility sector, also maintains that he's always found that 10-Ks provide enough information for his analysis.

No Way of Knowing
During their research for the GAO's July report on the state of corporate environmental disclosure, agency staffers examined 27 studies released since 1998 and seriously considered the findings of 15. Perhaps most startling was a 1998 EPA report, which revealed that 75 percent of publicly traded companies that had incurred environmental fines of $100,000 or more failed to properly disclose them. Omitting such fines from SEC filings is a violation of one of the few bright-line materiality guidelines provided by the commission.

In this year's report, the GAO concluded that the low level of many corporate disclosures was inadequate to determine if the disclosures were, in fact, adequate. A low level of disclosure, noted the agency, could mean one of three things: that a company has no environmental liabilities, that the costs are immaterial, or that the company is hiding information from investors.

The GAO proposed that the SEC create a searchable database of comment letters and company responses (a Website was launched in August); that SEC and EPA staffers work more closely, for example, by matching up EPA data on site-specific violations with the SEC database of parent companies; and that the SEC replace its current paper-based system of company-review memos with an electronic system.

Not groundbreaking proposals — and moving no faster, it seems, than a glacial pace. Indeed, notes the Rose Foundation's Little, the SEC staff has its hands full with Sarbanes-Oxley enforcement, so the commission has yet to establish a timetable for assessing the foundation's own proposal that it adopt the ASTM standards — although "they are receptive to hearing comments." Another drag on the process, says McGladrey & Pullen's Hanson, is that new Sarbanes burdens have sent corporations "hunting for experienced accounting talent," so even though the SEC has the budget to hire more accountants, the market is dry.

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