1. Who is the CSWG?

2. The SEC and corporate social disclosure: what's the link?

3. How does increased corporate social disclosure promote the public interest?

4. How would increased disclosure help further the SEC's
goal of investor protection?

5. What kinds of extra corporate social information is the
CSWG looking for?

6. What is the CSWG's position on voluntary corporate reporting?

7. Has the CSWG had any success?

8. Who can I contact for more information?

1. Who is the Corporate Sunshine Working Group (CSWG)?
The Corporate Sunshine Working Group is an alliance of investors (such as Trillium Asset Management and Domini Social Investments), environmental organizations (including Friends of the Earth and World Resources Institute), unions (including the AFL-CIO), and public interest groups (such as the Good Neighbor Project and the Stakeholder Alliance) working to enforce and expand SEC corporate social and environmental disclosure requirements. In December 1998, one hundred individuals and organizations signed onto a letter to the SEC asking for increased environmental and social disclosure from companies, launching the CSWG. Members of the Working Group file enforcement complaints at the SEC regarding companies' inadequate environmental and social reporting; undertake research, writing and public education; and encourage the SEC to promulgate detailed corporate social disclosure rules.

The following groups have recently called for better enforcement and new rules in the field of corporate environmental and social reporting:

• Investor Network on Climate Risk called on the SEC to issue an interpretation on climate risk disclosure.
• California Public Employees' Retirement System called for strengthened SEC environmental reporting rules
• Center for Political Accountability and 11 State Treasurers and Pension Trustees called for new SEC rules on corporate disclosure of political contributions
• The Rose Foundation and 50 pension funds, mutual funds, labor funds and foundations called on the SEC to adopt new environmental liabilities reporting rules

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2. The SEC and Corporate Social Disclosure: What's the Link?
Seventy years ago, after the notorious stock market crash of 1929, public policy makers resolved to "fix" the U.S. stock market to ensure that investors operated in an environment of truth and transparency. A few years later, Congress created the Securities and Exchange Commission (SEC), an agency to ensure the disclosure of adequate and accurate company information. Today, these disclosure and transparency laws have made the United States' stock markets the envy of and model for the world.

Under these laws, every publicly-traded corporation in the United States must file regular public reports with the Securities and Exchange Commission on a variety of financial matters, including a limited amount of information on environmental and labor issues. Requiring broader and deeper disclosure of social and environmental issues would both promote the public interest and serve investors.

Corporate disclosure of environmental and social issues through accounting and securities laws is uniquely robust, compared with other forms of company disclosure such as voluntary reporting, or other government-required disclosure obligations. First, corporate social reporting in financial statements are audited by third parties and enforced by a federal agency, with misstatements subject to redress through the courts. Importantly, corporate information disclosed in financial statements puts social and environmental information squarely in the hands of investors, which can provide a critical and permanent feedback loop to companies on their social and environmental performance.

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3. How does increased corporate social disclosure
1. promote the public interest?
Public disclosure can lead to increased community empowerment, better corporate accountability, increased management attention to social issues and ultimately, improved environmental and social performance. By integrating this information into the realm of mandatory financial reporting, social data will be more readily available to investors and subjected to the same types of rigor, enforcement and verification afforded financial reporting.

Hundreds of companies from General Motors to Bank America are voluntarily reporting environmental/social information, but the voluntary nature of this reporting makes it insufficient, especially for investors who seek corporate information across their entire investing universe. Communities, workers and environmental groups have been long been struggling for a shift in power relations between corporations and stakeholders, and many view the corporate responsibility initiatives of the private sector as an inadequate answer to making corporations more accountable.

With investors demanding non-financial information more than ever before, the public interest community has a timely and politically viable opportunity to advocate for meaningful disclosure requirements that will benefit investors and help to ultimately shift power relations between companies and communities.

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4. How would increased disclosure help fulfill the SEC's
1. goal of investor protection?
Although Congress created the SEC with powers to require broad levels of corporate disclosure for both the protection of investors and the promotion of the public interest, the SEC has focused its attention almost solely on investor protection in the last few decades. However, even the Commission's narrow view of its own mission, increased social and environmental reporting from companies would directly respond to investors' changing information needs.

Shareholders are demanding more non-financial information from companies: "Socially responsible" investors, which in the U.S. represent almost 10% of assets under professional management, depend on adequate social information for basic decision-making. Meanwhile, "traditional" investors base up to 40% of their asset allocation decisions on non-financial or qualitative factors such as corporate governance, strategic positioning, and management credibility. Their analysis is being spurred by a growing body of academic research that demonstrates a strong correlation between environmental and financial performance. Yet the SEC currently does not require much disclosure of these types of non-financial data.

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5. What kinds of extra information is the CSWG looking
1. for?
Under existing SEC regulations, companies must provide limited information on materially significant environmental liabilities, labor relations, and lawsuits. The CSWG is looking to expand corporate disclosure to areas such as human rights, worker health and safety and public health. These issues are important to communities as well as investors. To see the CSWG's full proposal, click here.

The CSWG developed this proposed disclosure schedule by examining common indicators included in leading corporate social and environmental reporting efforts (such as the reporting formats of the Global Reporting Initiative, the Coalition for Environmentally Responsible Economies, and the Stakeholder Alliance), and selecting the most value-relevant indicators from an investing perspective. The CSWG then consulted with institutional investors and financial researcher to identify and integrate their information needs. Finally, the also CSWG tried to include information that companies report to or is determined by third parties/ governmental agencies, in an effort to minimize the additional disclosure burden and create bright lines for how to estimate or describe various environmental or social issues.

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6. What is the CSWG's position on voluntary corporate reporting?

The Corporate Sunshine Working Group believes that voluntary corporate social and environmental reports are valuable not only because it provides benefits to investors and stakeholders, but also because it illustrates that corporations can indeed disclose environmental and social data, and that those companies find transparency efforts valuable. The CSWG particularly encourages the standardization of voluntary corporate social and environmental reporting [through efforts such as the Global Reporting Initiative (GRI)], and the use of external audits to provide verification for these reports.

At the same time, the CSWG also believes that public policy needs to begin catching up with the progress made in the voluntary reporting realm and better respond changing investor information needs. In particular, the CSWG believes that mandatory environmental and social disclosure - which would likely amount to a fraction of what is disclosed in GRI reports - is necessary for investors, who need better disclosure from all companies in their investing universe.

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7. Has the CSWG had any success?

The Corporate Sunshine Working Group has had some success in addressing the SEC's enforcement problems with respect to environmental disclosure, and in working for better SEC instructions regarding how companies to discuss environmental and social issues.

For example, in August 2001 an SEC representative announced at an American Bar Association conference that it would begin an effort to screen companies' financial reports for compliance with environmental disclosure regulations. That summer, the SEC also created an Environmental Disclosure Hotline to assist companies and accountants in complying with SEC regulations. And in May 2001, the SEC created a memo explicitly clarifying, for the first time, that shareholder divestment campaigns and consumer boycotts can be considered "material," or significant, and thus subject to disclosure under SEC rules.

Finally, in the wake of the corporate scandals, the SEC reviewed the company filings of the Fortune 500 to determine whether there were reporting gaps. As part of that 2002 study, the SEC reviewed companies' environmental disclosures, and found that many mining, oil & gas and manufacturing companies were not adequately reporting their environmental liabilities.

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8. Who can I contact for more information?
Contact Michelle Chan-Fishel of Friends of the Earth for more information: mchan@foe.org or 415 544 0790 x14.