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August 27, 2009

Largest US Companies Have to Improve Environmental Policies, Practices, and Disclosure
    by Robert Kropp

Report finds that few companies listed in the Russell 1000 Index have publicly available environmental policies, certifiable environmental management systems, or sustainability reporting mechanisms. -- Despite the critical role that business will have to play in reducing greenhouse gas (GHG) emissions to acceptable levels, few of the largest US-based companies have environmental policies and practices in place to assure that emissions reduction targets will be met, according to a recently published report prepared for the Sustainable Enterprise Institute (SEI).

The report, entitled The Road Not Yet Taken: The State of U.S. Corporate Environmental Policy and Management, was co-authored by Peter Soyka of Soyka & Company, an environmental and sustainability management consulting firm, and Mark Bateman, Director of Research for IW Financial, a provider of environmental, social, and governance (ESG) research, consulting, and portfolio management services.

The report found that among the companies listed in the Russell 1000 Index, which includes approximately 1,000 of the largest US-based companies, "potential claims that U.S. businesses are doing all that they can/should to effectively understand and manage their environmental impacts are not supported by the available evidence."

To evaluate corporate environmental policies and practices, the authors applied a number of key indicators that are generally accepted as necessary for effective reporting and performance. The study revealed that less than 60% of the Russell 1000 companies have a publicly available, enterprise-level environmental policy.

"We were able to identify environmental policies at 590 of the companies in the study," Mark Bateman, the co-author, told "There may in fact be companies that have environmental policies but do not disclose them to the public for evaluation."

The six key indicators applied in the report include board-level responsibility for environmental policy, application of the policy to all operations, commitment to quantifiable targets, commitment to public reporting, addressing of emissions, and addressing of energy and/or water conservation.

The report found that only eight companies in the Russell 1000 universe have publicly available environmental policies that contain all six indicators. Bateman said, "Two hundred companies that have publicly available environmental policies do not have any of the six attributes applied for the report."

"It's not as if any of the six attributes applied for the report could be described as cutting-edge, much less bleeding-edge," Bateman continued. "The attributes are generally considered to be foundational."

Only 8.1% of the companies with environmental policies (4.9% of all companies) specifically designate their Boards of Directors as having responsibility for the policies. "Far more commonly," the report states, "it is unclear from the text of the policy who is ultimately responsible for ensuring that it is implemented, followed, and over time, reviewed and improved. Similarly, most policies leave unstated who is ultimately responsible for ensuring that policy goals are attained."

Bateman said, "We found a full spectrum of sophistication in the reports we looked at." Among the attributes cited by the report as indicative of effective policy were the application of it to all employees, and compliance with world-wide environmental standards. A "small but significant fraction" of companies apply their environmental policies to their suppliers, as well.

On the other hand, only 24% of the policies offer more than merely generic statements, 14.7% include a commitment to public reporting, and only 9.2% include quantifiable targets. Of especial interest to sustainability investors is the finding that less than 15% of the policies (and only 8.8% of all companies) include a commitment to stakeholder involvement, and less than 5% of companies with policies commit themselves to third-party auditing.

According to the report, "The presence and sophistication of a formal environmental management system…may be a key indicator of the extent to which the senior management of a company is truly in a position to understand and actively manage its environmental issues." One such international consensus standard is the ISO 14001, the intention of which is to provide a framework for a company's environmental policies and practices.

"The most important thing is that a company has an environmental management system," said Bateman. "And when companies meet the ISO 14001, we know there is third-party certification of standards."

Among the Russell 1000 companies, 293, or less than 30%, disclose the presence of an environmental management system (EMS). 198 companies have an EMS that is certified to ISO 14001. Only 17 companies, or less than 2%, have obtained company-wide ISO 14001 certification.

Of further concern to investors, according to the report, was the low level of sustainability reporting provided by companies. Only 126 of the Russell 1000 companies issue environmental or sustainability, the majority of which do so in compliance with the Global Reporting Initiative (GRI). The GRI provides a sustainability reporting framework for companies to measure and report their economic, environmental, and social performance.

The report found a strong correlation between the presence of an EMS and environmental disclosure.

"Investors need comparable information across a large universe of companies," said Bateman. "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."

Despite statistics that indicate that the largest US-based companies have far to go in the areas of environmental policies, EMS, and reporting, the report concluded on a positive note, observing that "some major U.S. firms have developed sophisticated approaches to environmental policy, management systems, supporting infrastructure, performance measurement, and disclosure."

To further the progress made thus far, "Let's get all the environmental policies that exist into the public domain," Bateman said. "That way, companies can begin benchmarking their environmental performance against that of their peers."

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