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Wall Street Meets the EPA

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Where can I, as a securities analyst or portfolio manager, gain access to free, consistent, and reliable data on sector-based environmental performance that avoid the current limits of voluntary company reporting?

This question was central to a session entitled “Dialogue to Explore the Use of EPA Data in Financial and Investment Analysis,” held in New York City on June 19, 2008. The invitation to the meeting, which attracted 85 participants drawn in large part from the financial-services industry, was jointly issued by the New York Society of Security Analysts, Inc. (NYSSA), and the US EPA (Environmental Protection Agency) Region 2 (which includes New York). The meeting was part of the EPA’s National Dialogue on Access to Environmental Information, an attempt to cope with the increasing demand for environmental information from numerous professional sectors, including community leaders, academics, and the financial sector.

For the past several years, EPA staff have been exploring if and how the financial-services industry could consider environmental performance in decisions regarding investing, underwriting, and lending activities. The personal presence of the EPA’s Chief Information Officer, Molly O’Neill, was one marker of the agency’s strong involvement in this discussion. Based on the interest shown at the June 19 event, the EPA has committed to intensify its engagement with the financial community.


The motivation for financial-industry participation in the EPA Dialogue stems from a confluence of financial, economic, political, scientific, and technical factors. Central to the discussion is the significance of environmental data for the determination of financial materiality and for the process of financial analysis and valuation across all economic sectors. US environmental data is growing exponentially as discussion about the risks and opportunities related to climate change intensifies.

As the topic gains more traction, the need for a systematic contribution from the financial community becomes increasingly crucial. Notably close to home, CFA Institute’s 2008 Annual Conference included a panel entitled “Why Environmental, Social, and Governance (ESG) Issues Have Become Mainstream.” Also telling was the CFA Institute Centre for Financial Market Integrity’s official launch, in July 2008, of Environmental, Social, and Governance Factors at Listed Companies: A Manual for Investors. (Bloomberg, LP, a joint sponsor of the July launch, has independently made a major commitment to provide its subscribers with an exhaustive range of ESG data.) On the Centre’s website is a discussion of the financial community’s rationale for considering these questions. This discussion highlights:

  • the relevance of ESG issues to the long-term viability of the corporations investment professionals analyze and the securities they value
  • the potential for ESG information to significantly enhance the transparency of global capital markets
  • the competitive advantage for analysts and asset managers that could derive from the role ESG data plays in analysis and investment decision-making.

Another vital consideration for analysts relates to the evolution of reporting standards and techniques for ESG. The development and implementation of reporting standards for environmental data is just emerging, under the leadership of the Global Reporting Initiative. New techniques like XBRL have tremendous capacity to enhance the quality and accessibility of such data. It is in the highest self-interest of the financial community to participate in the definition and implementation of environmental reporting standards and techniques.

One considerable hurdle to the inclusion of ESG factors in investment analysis is the lack of quantifiable impacts, particularly on a company’s bottom line. But a greater resistance to analytical consideration of environmental issues results from their inevitable entanglement with differing belief systems. To reject analytical consideration of environmental factors inhibits the ability to anticipate and capture actual and potential macro- and microeconomic change, evaluate the capacity of corporations to manage such change, and identify the sustainable growth industries of the 21st century. The willingness to incorporate ESG topics and factors into analysis, on the other hand, has contributed importantly to the expanded coverage of environmental performance issues at an increasing number of the world’s largest investment firms.


The EPA’s databases are a treasure trove for those involved in investing, underwriting, and lending activities. They also promise even more detailed, refined, and consistent reporting than current voluntary corporate ESG reporting, which is largely nonstandardized. Though some financial analysts do access the available databases, specific obstacles must be removed in order to enable extensive and relevant usage by the securities industry.

The fundamental obstacle stems from the fact that EPA data were never intended for exploitation by analysts. This kind of information is traditionally used on a periodic basis to track companies’ compliance with multiple environmental regulations and to gauge general environmental performance (such as reductions in toxic chemical releases) at the facility level. That is the reason that the following litany of complaints regarding EPA databases is almost inevitable:

  • data inconsistency
  • poor data quality, including the issue of obsolescent data
  • inflexible data formats and documentation, inhibiting straightforward adaptation of data for spreadsheets and other common tools
  • lack of parent company identifiers across records
  • inconsistent facility identification numbers and codes
  • irrelevant timing of data releases
  • lack of understanding of both database context and the types of risk embedded in data
  • cumbersome accessibility, particularly with regard to the daunting Freedom of Information Act.

In addition to practical objections like these, a number of urgent theoretical debates are raging. Should the EPA limit itself to supplying high-quality raw data which could be used by private-sector third parties for customized purposes? Should the private sector consider using the EDGAR Online model for EPA data? What are the broad implications for the EPA’s role in corporate disclosure? Should the SEC work with the EPA to develop guidance for companies on environmental reporting? Should the EPA develop metrics that help the financial industry identify environmental liabilities and their materiality?


At the June 19 Dialogue, participants unanimously agreed on the importance of creating small workgroups to address criticisms and questions about data quality, content, format, and access. As a result, a Steering Committee and Data Management Workgroup are in formation.

The Steering Committee (co-chaired by the authors of this article) will assure that all normative and technical issues raised at the Dialogue receive continued attention, and will act as a liaison between the financial community and the EPA. The Data Management Workgroup will address concerns about data quality, the facility–corporate relationship, and timeliness, focusing on select databases such as the Toxic Release Inventory. It may be that this fall the financial community will find some of its concerns incorporated into the EPA’s Environmental Data Access Strategy, the first fruit of these efforts.

–Dinah A. Koehler, ScD, is a senior research associate at the Center for Corporate Citizenship & Sustainability, The Conference Board. Anthony Ginsberg is principal of Ginsberg Consulting and chair of NYSSA’s Sustainable Investing Committee.

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