SARBANESOXLEY ACT:

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SARBANES-OXLEY ACT Moving Environmental Risk to
the Forefront By Joseph R. Burstiner Vice
President Consultant Services and Dianne P.
Crocker Managing Director, Market
Research Environmental Data Resources, Inc. For
presentation at EBA-RMC Teleconference
Tuesday, December 14, 2004
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Sarbanes-Oxley Act

• Background on SOX Regulation
• Growing Pressure on Corporations to Disclose
• SOX and Environmental Risk Management
• Implications for Lenders

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• Sarbanes-Oxley Act of 2002
• BACKGROUND

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WHAT is Sarbanes-Oxley?

• Congress passed Sarbanes-Oxley in July 2002
• Most sweeping securities reform legislation since
  the 1930s
• Designed to
• tighten controls on corporate accounting
• improve accuracy and reliability of corporate
  disclosures
• make corporate officers (CEOs, CFOs) personally
  accountable for disclosures made by public
  companies

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WHY Sarbanes-Oxley?

• Came on heels of corporate accounting scandals
  (WorldCom, Enron)
• Expected to improve widespread non-compliance
  with existing SEC disclosure requirements
• 70 of companies inadequately report
  environmental liabilities in their financial
  statements
• Did not significantly alter existing SEC
  disclosure requirements, but did impose stiff new
  penalties for violations

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WHAT SOX Means to Corporations

• Applies to all publicly-owned corporations
• Requires companies to disclose information that
  would be considered material by a reasonable
  investor
• If there is a substantial likelihood that a
  reasonable person would consider it important
• Stakes are high!
• Corporate officers now face potential civil and
  criminal penalties for violations

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• Growing Pressure on Corporations for
  Environmental Disclosure

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Trend Toward Greater Disclosure

• Puts corporate governance in the spotlight
• SOX is just one of several recent developments
  driving corporate disclosure of risk information
• SEC also evaluating its requirements for
  environmental disclosure

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Trend Toward Greater Disclosure (contd)

• Increasingly intense pressure from regulators and
  investors to be transparent and accurate when
  disclosing liabilities
• More stakeholder lawsuits against corporations
  alleging misrepresentations about potential
  environmental liabilities

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• SOX and Environmental Risk Management

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Sea Change in Environmental Management

• Dramatically increases public corporations
  accountability for liability disclosures,
  including environmental liabilities, to
  stakeholders
• Moves environmental reporting from the backroom
  to the boardroom

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SOX and Environmental Disclosure

• USED TO BE
• Environmental risk data reviewed internally
• Compliance audit reports
• Environmental due diligence
• By
• Corporate EHS staff
• Real estate managers

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SOX and Environmental Disclosure

• NOW.
• Broader scope of information collected
• List of interested parties is growing, extending
  to any outside stakeholders, investors
• Environmental risk information has to be
  submitted directly to senior management

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SOX and Environmental Disclosure (contd)

• Subjects environmental liability assessments and
  disclosures to unprecedented scrutiny
• Greater emphasis on ensuring that disclosures are
  accurate and complete in all material aspects
• Reporting of environmental liabilities is now
  critical to corporations overall risk management
  program!

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Environmental Risk Disclosure

• Any information that might be considered
  material must be disclosed
• Potential environmental risks or liabilities
• Cost of major environmental cleanup that could
  affect future earnings
• Disclosure of hidden liabilities related to
  real estate
• Acquisition of real estate that is contaminated
  must be disclosed if risk deemed material

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Corporate Compliance with SOX

• Forcing companies to review their internal
  processes regarding disclosure of environmental
  information
• Its just the beginning of the wave
• Companies can expect increased scrutiny of
  disclosures of environmental information
• Companies must have systems in place to document
  and convey risk information to the right people

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• Potential Impact of SOX on Commercial Lenders

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Sarbanes-Oxley Consultants Weigh In
Are you familiar with the requirements of the
Sarbanes-Oxley Act?
Source EDRs 2004 Benchmarking Survey of
Environmental Professionals
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Role of Consultants and SOX Compliance

• As awareness about Sarbanes-Oxley grows
• Likely to be more reliance on environmental
  consultants to
• quantify environmental liabilities
• make materiality determinations with respect to
  environmental liabilities
• determine diminished market value of
  environmentally impaired properties

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Potential Impacts of SOX

• Could give Phase Is new significance beyond
  pre-purchase due diligence
• Could drive Phase I automation, electronic
  storage of past reports
• Corporations may systematically store Phase Is
  that document environmental liabilities on the
  companys properties
• May drive more brownfields deals forward by
  creating incentive for companies to resolve
  potential liabilities associated with
  contaminated properties

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Potential Impacts of SOX (contd)

• Corporations will be forced to integrate any
  material risks in their real estate portfolio
  into their Sarbanes reporting requirements
• SOX could make it harder for corporations to use
  a Dont ask/Dont tell approach to reporting
  liabilities of their contaminated properties

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For More Information

• www.sarbanes-oxley.com
• www.findlaw.com to get a copy of the legislation
  do a search for Sarbanes Oxley Act on this website