The Relationship Between the Reporting of Environmental Capital Expenditure in the 10-K Reports and Online Sustainability Reporting of U.S. Largest Energy and Utilities Companies

Abstract

This paper is a study of the 45 largest U.S. energy and utilities companies demonstrating a correlation between the inclusion by these companies of data on environmental capital expenditures (ECE) in their 2008 10-K annual financial reports and the score that the companies attain on the Pacific Sustainability Index (PSI) - a rating system developed by the Roberts Environmental Center at Claremont McKenna College of the same year. ECE is defined as capitalized environmental costs that are made voluntarily or by government mandate to prevent future environmental contamination, while the PSI is a scoring system measuring the breadth and depth of companies’ online sustainability reporting (CSR). Neither the reporting of ECE in the 10-K reports nor CSR is currently regulated, resulting in a wide variation in companies’ sustainability disclosures. ECE reporters achieve higher PSI scores. A higher ratio of ECE to total capital expenditures or to assets predicts a higher level of PSI scores.