The US Securities and Exchange Commission (SEC) requires companies to submit annual reports that include items regarding the description of the business, risk factors, and legal proceedings that may impact a company’s future financial performance (Condon 2015). These requirements are a good addition to the financial reporting elements; however, they do not appear sufficient in promoting full transparency about environmental and ecological risks when seen in practice. While a good beginning, more stringent reporting standards should be adopted to provide better transparency to environmental risks.
While the requirements in the SEC’s items under Regulation S-K aim to uncover environmental risks to a business, in practice these reports often do not provide transparency into those factors. Investors are looking for companies to show they are pursuing sustainability, however, the company themselves do not want to risk providing information that may create litigation risks (Cleveland, Lynn, and Pike 2015). When looking at Chevron’s 2019 SEC 10-K form this balancing issue of providing mandatory requirements while avoiding communicating potentially litigious items. Following requirements in SEC’s S-K Item 101 regarding description of business, they ensure they list climate investments they are making to show they are pursuing environmental aspects. However, in SEC’s S-K Item 503(c) regarding risk factors, they gloss over many of the actual environmental risks their business creates. The risks they provide are only that the government may create stricter greenhouse gas emission (GHG) requirements and investors are looking for to environmental, social, and governance (ESG) matters so there could be potential future regulation costs and negative impact to stock prices. There focus is entirely on costs of regulation or clean-ups and does nothing to provide transparency to spill risks or any other environmental degradation that can occur from their extraction processes or downstream product uses. While the SEC reporting requirements are useful for investors, they still provide minimal transparency to the real environmental risks the companies operations create.
Often mandatory reporting requirements ratchet up over time. The requirements that the SEC annual reporting requires are good beginnings but need deeper requirements if they are to succeed in providing better transparency into environmental and ecological risks. Furthering the reporting requirements with accounting standards that are industry specific for sustainability factors would help provide further improvements in these reports (Rogers 2015). Continually improving mandatory reporting requirements to include additional factors like sustainability is critical to prevent further environmental damage.
Author: Logan Callen
Chevron. 2020. “SEC Filings Form 10-K 2019”. Accessed September 21, 2020. https://chevroncorp.gcs-web.com/sec-filings/sec-filing/10-k/0000093410-20-000010.
Cleveland, Nancy, David Lynn and Stephen Pike. 2015. “Sustainability Reporting: The Lawyer’s Response.” Business Law Today (January). Accessed September 21, 2020. https://businesslawtoday.org/2015/01/sustainability-reporting-the-lawyers-response/.
Condon, Clare. 2015. “Your SEC Requirements and Environmental Risk.” EHS Daily Advisor (December 9). Accessed September 21, 2020. https://ehsdailyadvisor.blr.com/2015/12/sec-requirements-environmental-risks/.
Rogers, Jean. 2015. “A Good Corporate Accounting of Social Costs is Needed.” The New York Times. Accessed September 21, 2020. https://www.nytimes.com/roomfordebate/2015/04/16/what-are-corporations-obligations-to-shareholders/a-good-corporate-accounting-of-social-costs-is-needed.