Trillium Asset Management Corporation
July 2, 2003
Jonathan G. Katz
RE: SEC File # 4-463
Dear Mr. Katz:
Trillium Asset Management is a Boston-based investment firm that specializes exclusively in socially responsible asset management. Since our founding in 1982, we have grown to manage nearly $650 million in assets for individual and institutional shareholders.
Trillium Asset Management has a long-standing commitment to encouraging companies to enhance disclosure of their environmental and social performance. As investment managers, we view accurate information as the lifeblood of our capital markets and we believe that a strong commitment to disclosure and transparency is in the best long-term interest of companies and their shareholders. Nearly 15 years ago, Trillium Asset Management originated and incubated the Coalition for Environmentally Responsible Economies (CERES). CERES developed a set of principles that commit companies to improve their environmental practices and publicly report their progress. We've persuaded major companies to adopt the CERES Principles and are currently encouraging companies to meet the next standard of public accountability, the Global Reporting Initiative (GRI). Developed as a partnership between CERES and the United Nations Environment Programme, the GRI created a consensus-based set of guidelines for companies reporting on their social and environmental performance. Trillium Asset Management also sponsored the Rose Foundation's report, The Environmental Fiduciary: The Case for Incorporating Environmental Factors into Investment Management Policies, and strongly concurs with the report's conclusion that poor disclosure of environmental liabilities can destroy value for long-term shareholders.
Given our long-standing interest in disclosure and corporate environmental reporting, we are writing to urge the Commission to enhance its standards for corporate reporting of financially significant environmental liabilities. We recommend that the Commission act on the pending rulemaking petition (SEC File # 4-463) submitted by the Rose Foundation for Communities and the Environment. The petition, which has the support of numerous institutional investors and non-governmental organizations, recommends the adoption of standards for evaluating and disclosing environmental liabilities developed by the American Society of Testing and Materials.
As other proponents of the petition have commented, companies are currently under-reporting financially material environmental liabilities. According to a March 2001 study by the U.S. Environmental Protection Agency, approximately three quarters of companies facing environmentally-related legal actions involving potential liabilities of $100,000 or more did not meet the disclosure requirements mandated by SEC Regulation S-K, Item 303. The same report showed that 96% of publicly traded companies facing Resource Conservation & Recovery Act corrective actions failed to accurately disclose these liabilities.
Companies failing to adequately report environmental liabilities often seek to justify their conduct by maintaining that such liabilities are difficult or impossible to quantify. Many companies also currently hide environmental liabilities from investors by practicing piecemeal accounting - where each environmental liability is evaluated in isolation and deemed immaterial, even if the sum of all such liabilities is very large and clearly material to their financial performance.
By adopting the ASTM's consensus-based, industry-generated standard, the Commission would enhance investor confidence by helping to ensure that material environmental liabilities are accurately and consistently reported. For this reason, we urge the Commission to act on the Rose Foundation petition to initiate a rulemaking to define environmental materiality based on the ASTM guidelines.