Endangered Green Reports: 'Cumulative Materiality' in Corporate Environmental Disclosure after Sarbanes-Oxley

28 Pages Posted: 4 Feb 2010

See all articles by Mitchell F. Crusto

Mitchell F. Crusto

Loyola University New Orleans College of Law

Date Written: 2005


Recent corporate financial scandals involving Enron, WorldCom, Arthur Andersen, and others have heightened awareness of the need to revisit corporate accountability. Congressional response in the form of the passage of the Sarbanes-Oxley Act of 2002 raises questions about the transparency of corporate environmental disclosure.

Over the years, corporations have selectively disclosed their environmental performance. In the past, corporate environmental disclosure was driven by three things: environmental compliance statutes, federal securities law, and public relations. Corporations sought to positively influence investor and public opinion of their environmental record through the use of the "green report"; typically a glossy, unaudited showcase of corporate environmental good deeds. However, the Enron scandal and Sarbanes-Oxley are likely to change what corporations disclose as to their environmental matters.

This Article explores the impact that post-Enron corporate reform, and specifically the Sarbanes-Oxley Act, has had on corporate environmental financial disclosure, particularly green reports. Part I provides an overview of the current environmental disclosure landscape and pressure for reform after Sarbanes-Oxley. Part II details the shortcomings of corporate, investor, and regulatory efforts to encourage corporate compliance with environmental regulations, creating a need for more accurate environmental disclosure. Part III describes the current demand for a heightened standard of corporate environmental disclosure and the Securities and Exchange Commission's (SEC's) attempts at establishing a satisfactory disclosure standard. Part IV analyzes the central feature of a current corporate environmental disclosure proposal developed and presented by the American Society of Testing and Materials (ASTM), which would require a cumulative assessment of the financial impact of all environmental liabilities for "materiality." This "cumulative materiality standard," if adopted, would replace the present SEC standard of materiality for each proceeding or liability. The author concludes that, while Sarbanes-Oxley does not expressly address corporate environmental disclosure, large economic entities, including publicly traded corporations and the federal government, should adopt the ASTM "cumulative materiality standard" over voluntarily published green reports.

Keywords: corporate financial scandals, Enron, WorldCom, corporate disclosures, corporate environmental disclosure, Sarbanes-Oxley Act of 2002, cumulative materiality

Suggested Citation

Crusto, Mitchell F., Endangered Green Reports: 'Cumulative Materiality' in Corporate Environmental Disclosure after Sarbanes-Oxley (2005). Harvard Journal on Legislation, Vol. 42, p. 483, 2005, Available at SSRN: https://ssrn.com/abstract=1546670

Mitchell F. Crusto (Contact Author)

Loyola University New Orleans College of Law ( email )

7214 St. Charles Ave.
Campus Box 901
New Orleans, LA 70118
United States
504-861-5743 (Phone)

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