Financial Reporting of Environmental Liabilities

Transcription

1 Financial Reporting of Environmental Liabilities Julie Desjardins, CA Advisor Representing the Canadian Institute of Chartered Accountants

2 Outline financial reporting today s spearheading environmental issue: climate change Ontario Securities Commission shareholders conclusion 2

3 Financial Reporting financial statements - e.g.: environmental capital expenditures, penalties contingencies and commitments asset retirement obligations taxation new assets, liabilities, expenses and revenues related to emissions trading transactions 3

4 Financial Reporting management s discussion and analysis (MD&A) e.g.: known trends, demands, commitments, uncertainties quality of earnings and cash flows critical accounting estimates table of contractual obligations 4

5 Financial Reporting annual information form (AIF) - e.g.: current and expected financial and operational effects of environmental requirements on capital expenditures, earnings and competitive position description of environmental policies fundamental to operations and the steps taken to implement them environmental risks environmental liabilities related to mineral projects, penalties or sanctions imposed by a court or regulator 5

6 Climate Change External Reporting Mandatory capital markets regulatory filings GHG emissions reports to governments Voluntary sustainability reporting carbon disclosure project survey responses 6

7 Disclose in Mandatory or Voluntary Reports? considerations conclusion about materiality selective disclosure CEO/CFO certifications civil liability reliability of information systems, controls and verification 7

8 Direct/Indirect Consequences/Trends continuity of business operations adaptation issues, energy, water new business opportunities innovative new products access to capital access to insurance new capital expenditure considerations increased operating complexities new considerations in mergers, acquisitions, divestitures new assets and liabilities to manage, new disclosures Executive Briefing: Climate Change and Related Disclosures Building a Better MD&A: Climate Change Disclosures Climate Change Briefing: Questions For Directors To Ask (see cica.ca) 8

9 Regulation - Putting a Price on Carbon carbon taxes carbon neutral commitments facility emission reductions Western Climate Initiative cap and trade system to begin 2012 building codes fuel standards appliance standards 9

10 Climate Change Disclosure Developments in US Environmental Protection Act greenhouse gas reporting rule 25,000 tonnes threshold data; beginning for 2010 emissions state and provincial reporting requirements National Association of Insurance Commissioners insurance companies must disclose to regulator financial risks and mitigation actions 10

11 Important U.S. Settlements and Cases US Attorney General settlement agreements with energy companies (2008 Dynegy, Xcel; AES) Connecticut v American Electric Power states can sue power companies for their greenhouse gas emissions Comer v Murphy Oil added to ferocity of Hurricane Katrina 11

12 Climate Change Capital Markets Disclosure Developments in US February 2010 SEC interpretive release on climate change disclosures disclosures about: impact of legislation and regulation international accords indirect consequences of regulation or business trends physical impacts of climate change 12

13 Impact of Legislation, Regulation or International Accords pending legislation or regulation 2 part test 1. Unless management concludes that legislation or regulation is not reasonably likely to be enacted, it must proceed on the assumption that the legislation or regulation will be enacted 2. Is it reasonably likely to be material on the company, its financial condition or results of operations? MD&A disclosure is required negative and positive consequences 13

14 Ontario Private Member s Resolution ESG Reporting review Ontario's corporate disclosures - do investors have access to all information material to them OSC to undertake consultation to establish best practices OSC to seek to develop and adopt an enhanced standardized reporting framework for both quantitative and qualitative social and environmental information December 2009 OSC Staff Notice , creation of Environmental Reporting Advisory Committee build on

15 OSC Staff Notice Regulators not happy with existing disclosures critical accounting estimates MD&A potential environmental liabilities MD&A, AIF asset retirement obligations F/S, MD&A financial and operational effects of environmental protection requirements AIF environmental policies fundamental to operations AIF environmental risks MD&A, AIF noted responsibility for CEO/CFO certification and audit committee review 15

16 GAAP under IFRS more environmental liabilities higher amounts more disclosure 16

17 Shareholder Resolutions October 27, 2009: SEC to allow shareholder resolutions seeking information from companies on the financial risks they face from social and environmental issues including climate change formerly proposals excluded if they focused on evaluation of operational risks and liabilities that were part of a company s ordinary business operation 17

18 2010 Proxy Season US and Canada 95 climate-related shareholder resolutions 40% increase over 2009 many sectors: e.g. oil, gas, utilities, agriculture, forestry, financials, buildings BP and Shell plc resolutions 18

19 Some Do s Do monitor climate change regulatory developments assess both direct and indirect climate change impacts, opportunities and trends for disclosure ensure consistency of all external reporting if in doubt, disclose review competitors disclosures focus on shareholder and legal actions, noting disclosures requested, ordered or settled on 19

20 Conclusion climate change issues impact strategies, risk management and financial reporting environmental issues are of growing importance to investors and boards of directors narrow focus on environmental liabilities not sufficient disclosure and governance matter 20