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July 15, 2010
Large US Companies Continue to Lag in Reporting on Environmental Issues
    by Robert Kropp

IW Financial and Soyka & Company follow last year's The Road Not Yet Taken with a new study that finds many S&P1000 companies insufficiently transparent regarding environmental policies.

Last summer, when the report entitled The Road Not Yet Taken: The State of U.S. Corporate Environmental Policy and Management was published, Mark Bateman, Director of Research for IW Financial, and co-author of the report, told, "Investors need comparable information across a large universe of companies. Having companies disclose according to a standardized format is particularly helpful, but what is most important at this stage is that companies report environmental information, regardless of format."

The Road Not Yet Taken found that 590 of the S&P1000 companies had publicly available environmental reports, although only 24% of the policies offer more than merely generic statements, 15% include a commitment to public reporting, and nine percent include quantifiable targets.

Along with Peter Soyka of
Soyka & Company, who also co-authored The Road Not Yet Taken, Bateman has followed the earlier report with a new study, entitled "Benchmarking Analysis of Disclosed U.S. Corporate Environmental Practices." Like the earlier report, the study analyzes the environmental reporting of companies included in the S&P1000.

IW Financial is a provider of environmental, social, and governance (ESG) research, consulting, and portfolio management services, and Soyka & Company is an environmental and sustainability management consulting firm.

Bateman told, "We have seen increases in disclosure each year, but it's not fair to say that disclosure has become standard. This study differs from The Road Not Yet Taken because it drills down to find out how robust those corporate environmental policies are."

The study employs an evaluation methodology developed by IW Financial called the Governance and Environmental Management Strength (GEMS) Rating, which addresses the presence or absence of 49 distinct indicators, and organizes them into five major elements, including governance, policy, infrastructure and systems, performance results, and transparency and accessibility.

That the state of publicly available environmental reporting by corporations still has a long way to go is illustrated by the fact that of the 962 companies included in the study's analysis, 170, or 18% of the total, "have a total score of zero, meaning that they do not disclose any of the 49 individual pieces of information comprising the GEMS Rating scale," according to the study. Nearly half of the companies have scores of less than ten.

The highest ranking score of 82 was achieved by Intel, followed by Weyerhaeuser with a score of 75. According to the study, the industry sector with the best overall performance was consumer staples, with a median total score of 34, followed by utilities and materials.

Referring to the sectors that performed relatively well, Bateman said, "Companies that have been scrutinized tend to have more developed policies and more transparency on the issues."

"It may seem surprising that companies in high-emitting industries often rank high in the various sustainability ratings," he continued, "But it's because there are higher expectations around environmental systems and disclosures for those companies."

"In a rating system that compares level of detail, companies in industries that are considered dirty do better, compared to companies in clean industries such as the financial sector," Bateman said.

The top-performing company in the financials sector was Citigroup, whose score of 61 fell short of finishing in the top 25. Bateman observed, "Citigroup did well in the category of accessibility and clarity of disclosure, and relatively well in the categories of governance, policy, and infrastructure and systems. In the results section, they did poorly, but it's not surprising given that it's a financial company."

"Every company was scored on exactly the same components," he continued. In other words, while an industry-specific analysis of financial companies might look for policies addressing such issues as lending for environmentally destructive activities as mountaintop removal or oil sands extraction, the study does not do so.

"The primary utility of any sustainability rating is to spark additional thought and conversation," Bateman said. "A well-designed rating gives you the opportunity to look at a specific kind of question, and do some comparative analysis to contribute to your understanding of a specific company or sector."

The report states, "Given the long-standing and clear nature of the environmental obligations faced by each and the development of a large body of standards, guidance, best practice examples, and other resources over the past 20 years, we would have expected that the overall and typical environmental posture of the companies within these industries would be significantly more advanced than it appears to be, based upon the available data."

Bateman said, "We're not surprised, but disappointed. It doesn't make sense that companies are not more engaged and more transparent about what they're doing, especially in the high-emitting industries."

Asked about the possible impact of the Securities and Exchange Commission (SEC)'s guidance on disclosure of climate change risks and opportunities at publicly traded companies, issued in January, Bateman professed uncertainty.

"It will be interesting to see if the guidance has any impact at all," he said. "If you read the SEC guidance, they're very clear in stating that the standards are not changing. And with so much else going on at the SEC right now, it seems unlikely that the failure of firms to disclose would prompt disciplinary action of any kind."

"IW Financial has used the 10K as one of its primary sources for several years," he continued. "One of the things we will be looking at is whether there is any noticeable change in 10K disclosures."

An interesting feature of the study is its inclusion of a comparison with the other evaluation systems and ratings that are proliferating today. IW Financial provides the data for
Corporate Responsibility Magazine's annual 100 Best Corporate Citizens List. Also included in the comparison are the Global Top 100 list published by Corporate Knights, and the Newsweek Green Rankings.

The report states, "Despite the disparity in approaches taken to evaluating corporate environmental posture and sustainability across these different approaches, including our own, results yielded by each have some interesting similarities." Indeed, the consensus top-rated company was Intel, which also finished first in the IW study.

"Our study is a tool designed not for investors, but to look at direct impact environmental management and practices to allow for benchmarking of companies against their peers," Bateman said.


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