August 30, 2002
Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609
Re: File No. S7-22-02
Dear Mr. Katz:
Calvert Group1 is writing to express support for the recently proposed rule amending Form 8-K to expand the list of events triggering a filing obligation. In particular, we applaud the inclusion of "a direct or contingent financial obligation that is material to the registrant," as a possible means of capturing social and environmental liabilities for disclosure. However, we believe that additional guidance needs to accompany this specific triggering event to reinforce the affirmative responsibility for corporate financial disclosure on matters of importance to socially responsible investors.
In May, Dr. Julie Fox Gorte, Director of Calvert's Social Research and Policy Department wrote the Commission in support of the Social Investment Forum's request for the creation of a roundtable discussion to examine proposals to reform and expand corporate financial disclosure of social and environmental risk liabilities (copy attached). In response to the Forum's request, the Securities and Exchange Commission (Commission) stated that it planed to undertake a full review of social and environmental disclosure regulations.
In drafting the proposed rule, the Commission has required material direct or contingent financial obligations to be reported on the Form 8-K. However, the proposed rule does not directly address the matter of social and environmental disclosure. Although the enhanced requirement on Form 8-K reporting will capture some social (i.e., EEOC, OSHA, NLRB fines) and environmental (i.e., EPA fines) liabilities as direct financial obligations, when a fine is considered in isolation, it may not meet the materiality standard. Rather, it is often the cumulative affect of years of fines that has a material impact on an issuer, but which still is not required to be reported.
Thus, we remain concerned that even under the new proposed rule, issuers can still evade the responsibility of reporting liabilities stemming from social and environmental issues. It is imperative for the Commission to take additional actions to ensure that all material environmental and social liabilities are reported to investors, be they on an isolated or cumulative basis.
Very truly yours,
|/s/ Ivy Wafford Duke
Ivy Wafford Duke
|/s/ William M. Tartikoff
William M. Tartikoff
|1||Calvert Group, Ltd. is a sponsor of a family of open-end investment companies with approximately $8.5 billion in assets under management for more than 300,000 shareholders.|
May 1, 2002
Mr. Harvey L. Pitt
Securities and Exchange Commission
450 Fifth Street, NW, Room 6012
Washington, DC 20549
Dear Chairman Pitt:
As a longstanding member of the Social Investment Forum (SIF), we are writing on behalf of Calvert to support the Forum's recent request to the Commission for the creation of a roundtable discussion to examine proposals to reform and expand corporate financial disclosure of social and environmental risk liabilities. We are encouraged by your letter of April 12, 2002, to the SIF stating that the SEC plans to undertake a full review of social and environmental disclosure regulations.
Located in Bethesda, MD, Calvert manages more than $8.3 billion in 27 socially screened and non-screened mutual fund portfolios for more than 220,000 shareholders. Investing in companies that are committed to meeting the challenges of the future with an expanded view of corporate responsibility is more than just a matter of "doing the right thing" - we believe it makes good business sense. We support the Commission's proactive initiatives to solicit input from the financial community and move toward the development of an improved system for disclosure and reporting.
Calvert whole-heartedly supports the Commission's stance on the need for improved financial disclosure and stringent auditing guidelines. We believe that the "Pitt Proposal(s)" will ultimately facilitate the development of healthy and viable financial markets, as well as restore investor confidence. We also support the SIF's proposal that the Commission convene a roundtable discussion to examine proposals to reform and expand financial disclosure and auditor oversight of material social and environmental liabilities, obligations and impairments. It is our experience that nonfinancial indicators do indeed reveal a larger picture of a company, a picture that we as socially responsible institutional investors want to see.
A 1998 EPA study found that 74% of U.S. publicly traded companies were under reporting environmental liabilities and debt obligations. Companies face financially material risks associated with environmental compliance, clean ups and legal fees. The recent General Electric case perhaps best exemplifies the substantial liabilities a company may face from environmental degradation. The EPA ruled in February 2002 that General Electric clean up 1.3 million pounds of polychlorinated biphenyls (PCBs) that were released into the Hudson River over a period of 30 years. It is estimated that the cleanup will cost the company close to $500 million. Another example to illustrate the gravity of environmental and worker safety liabilities, which when disclosed may affect share price is asbestos clean ups. Asea Brown Boveri has set aside $940 million for liabilities it faces for asbestos cleanup. Furthermore, Georgia Pacific estimates that it needs $221 million to address asbestos claims over the next ten years.
For a long time, institutional shareholders have been concerned with the lack of adequate social and environmental disclosure. In 1998, the United Steel Workers of America petitioned the SEC regarding Phelps Dodge. The petition alleged that the company failed to adequately disclose environmental liabilities and cleanup costs associated with a contaminated site. Also in 1999, shareholders filed a complaint against Crown Petroleum for failing to disclose certain material government-related environmental proceedings and the material effects of a labor boycott (See also: http://www.foe.org/international/cswg/).
Greater social and environmental disclosure helps investors to anticipate and qualify contingent obligations or impairments of assets due to social and environmental regulation, litigation or campaigns. We request that the Commission convene a roundtable to examine proposals to reform and expand financial disclosure and auditor oversight of material social and environmental liabilities, obligations and impairments. Such proposals could include:
1. Changing the materiality threshold for environmental disclosure to account for cumulative environmental liabilities, penalties, settlements, fines, and violations along the lines of ASTM International's 2001 Standard Guide for Disclosure of Environmental Liabilities (E 2173-01). This disclosure would provide investors with information with which to determine whether environmental liabilities in aggregate are materially significant.
2. Requiring the disclosure of implementation costs for the control of hazardous air pollutants under the Maximum Achievable Control Technology (MACT) regulations.
3. Issuing an Interpretative Release or Staff Accounting Bulletin on the disclosure of environmental issues in the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). At present, environmental liabilities and trends are often perfunctorily addressed in the MD&A or not even disclosed.
4. Requiring companies to state outstanding cases/complaints and number and aggregate value of violations found by the National Labor Relations Board, National Mediation Board, Department of Labor, Equal Employment Opportunity Commission and/or Office of Federal Contract Compliance Programs. Disclosure of this information can provide a clearer state of management-labor relations as well as serving as leading indicators of discrimination and harassment before such cases create legal liabilities and damage to a company's reputation.
We would be happy to elaborate or comment further on our experience. I can be reached at (301) 657-7039 or via email at Julie.Gorte@calvert.com.
/s/ Dr. Julie Fox Gorte
Dr. Julie Fox Gorte
Social Research and Policy Director
CC: Senator Sarbanes, Chair, Senate Banking Committee.