ASTM E2173-22

This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the
Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.
Designation: E2173 − 22
Standard Guide for
Disclosure of Environmental Liabilities
This standard is issued under the fixed designation E2173; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
1. Scope working committee at the time found such shortcomings as (a)
rarely attempting to identify a full portfolio of potential
1.1 Purpose—The purpose of this guide is to provide a
liabilities, (b) dividing liabilities into separate sites or claims to
series of options or instructions consistent with good commer-
avoid aggregated material outcomes that would require
cial and customary practice in the United States for environ-
disclosure, and (c) relying on “known minimum costs” or “no
mental liability disclosures accompanying audited and unau-
estimate” to forecast liabilities. This disclosure standard
dited financial statements. This guide is consistent with
2 (E2173), initially developed over a seven-year period with its
Generally Accepted Accounting Principles (GAAP) issued by
first approval in 2001, was created to cure these shortcomings
Financial Accounting Standards Board (FASB), as well as
by providing guidance for best practice disclosure, including
related statements, rules, regulations, and/or procedures issued
aggregation of liabilities before conducting a materiality test,
by Government Accounting Standards Board (GASB), Public
as well as disclosure of the major assumptions and evaluations
Company Accounting Oversight Board (PCAOB), Securities
underlying the disclosure. The companion referenced cost
and Exchange Commission (SEC), and Federal Accounting
estimation standard (E2137, which was split into a separate
Standards Advisory Board (FASAB). This guide is intended to
standard due to its broader applicability beyond disclosure
be consistent with national and multinational issuers of ac-
purposes) provided guidance on a hierarchy of cost estimation
counting standards and practices, including International Ac-
methodologies that explicitly address uncertainty and recom-
counting Standards Board (IASB).
mend alternative methodologies. Both E2137 and E2173 have
1.2 Objectives—The objectives of this guide are to:
been revised over time to reference and incorporate applicable
1.2.1 Identify the common terminology used in environ-
elements of new accounting standards and regulations, con-
mental disclosures,
sider applicable case law, and incorporate new best-practice
1.2.2 Explain the need for environmental disclosures,
examples and years of additional experience with cost estima-
1.2.3 Define the conditions warranting disclosure, and
tion and disclosure.
1.2.4 Illustrate the report formats and content typically used
1.4 This international standard was developed in accor-
in environmental disclosures.
dance with internationally recognized principles on standard-
1.3 History of development of this guide—In 1993-1994, a
ization established in the Decision on Principles for the
group of insurance companies approached ASTM to request a
Development of International Standards, Guides and Recom-
best practice environmental cost estimation and disclosure
mendations issued by the World Trade Organization Technical
standard, as they were experiencing high environmental reme-
Barriers to Trade (TBT) Committee.
diation and asbestos claims from policyholders that were
reporting no material liabilities in their annual reports. At the 2. Referenced Documents
same time, asbestos and environmental liabilities were trigger-
2.1 ASTM Standards:
ing bankruptcy more frequently, again with little prior disclo-
E1527 Practice for Environmental SiteAssessments: Phase I
sure by companies other than boilerplate legal language that
Environmental Site Assessment Process
costs were too uncertain or not estimable, or that such costs
E2091 Guide for Use of Activity and Use Limitations,
would not be material. Research by the ASTM standard
Including Institutional and Engineering Controls
E2137 Guide for Estimating Monetary Costs and Liabilities
for Environmental Matters
ThisguideisunderthejurisdictionofASTMCommitteeE50onEnvironmental
E2718 GuideforFinancialDisclosuresAttributedtoClimate
Assessment, Risk Management and CorrectiveAction and is the direct responsibil-
Change
ity of Subcommittee E50.05 on Environmental Risk Management.
Current edition approved Jan. 1, 2022. Published April 2022. Originally
approved in 2001. Last previous edition approved in 2016 as E2173 – 16. DOI:
10.1520/E2173-22. For referenced ASTM standards, visit the ASTM website, www.astm.org, or
This guide alone does not satisfy or include all disclosure requirements under contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM
GAAP, SEC, IASB, or any other agency or regulatory body. Appendix X1 provides Standards volume information, refer to the standard’s Document Summary page on
some examples of where such requirements are contained. the ASTM website.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
E2173 − 22
E3123 Guide for Recognition and Derecognition of Envi- 3.1.7 Comprehensive Environmental Response, Compensa-
ronmental Liabilities tion and Liability Act of 1980 (as amended, 42 USC Section
E3228 Guide for Environmental Knowledge Management 9601 et seq.), CERCLA, n—also known as “Superfund,” a
major U.S. Federal environmental law establishing key legal
2.2 FASB Standard:
concepts of environmental costs and liabilities.
Statement of Financial Accounting Concepts No. 8 “Con-
ceptual Framework for Financial Reporting”, September
3.1.8 Comprehensive Environmental Response, Compensa-
tion and Liability Information System, CERCLIS, n—list of
2.3 IFRS Standard:
sites compiled by the EPA that the EPA has investigated or is
IAS 37 Provisions, Contingent Liabilities and Contingent
currently investigating for potential hazardous substance con-
Assets
tamination for possible inclusion on the National Priorities
List; succeeded by SEMS.
3. Terminology
3.1.9 constructive obligation, n—concept that past practice
3.1 Definitions of Terms Specific to This Standard:
and/or public statements create a valid expectation on the part
3.1.1 accretion, n—increase to the present value of a
of a third party.
liability solely because of the passage of time, normally a year;
3.1.9.1 Discussion—An example is a company policy to
also “unwinding the discount.”
excavate all underground storage tanks once removed from
3.1.2 activity and use limitations (AUL), n—legal or physi-
service. See IAS 37:10.
cal restrictions on the use of, or access to, a site or facility to
3.1.10 contingency, n—type of liability dependent on the
eliminate or minimize potential exposures to chemicals of
outcome of one or more events.
concern or prevent activities that could interfere with the
effectiveness of a response action to ensure maintenance of a 3.1.10.1 Discussion—An example is multiparty CERCLA
liability lacking an allocation among PRPs. In 1975, FASB
conditionof“acceptablerisk”or“nosignificantrisk”tohuman
health and the environment (see Guide E2091). identified environmental liabilities as “contingencies”, but
FASB has since published definitions for asset retirement
3.1.2.1 Discussion—These legally enforceable obligations
obligations, environmental (remediation) obligations, commit-
areintendedtopreventadverseimpactstohumanorecological
ments and guarantees. See ASC 450.
receptors that may be exposed to residual chemicals of concern
3.1.11 counterparty risk, n—entity’s exposure to the non-
at an environmentally-impaired property.
performance risk of default by one or more PRPs that share a
3.1.3 asset impairment, n—an accounting revaluation which
legal or constructive obligation in environmental costs and
closes or eliminates any financial gap between the current
risks; alternatively, one PRP’s financial exposure to any other
market value and the book value of a specific asset.
PRP on the same environmental cost or risk, especially where
3.1.3.1 Discussion—Example: an entity plans to sell an
another PRP bears responsibility to perform, guarantee,or
underutilized oil pipeline which is also undergoing spill
indemnify another.
cleanup work; assuming the pipeline’s book value is $10 and
will undergo $1 in spill cleanup work, the entity will decide 3.1.11.1 Discussion—Also refers to the ability to pay and
whether to adjust the $10 book value (“book an asset impair- long-term creditworthiness. (ASC 410-30-30-7, ASC 820-10-
ment”) prior to an asset’s sale and independent of the liability 35-17/18, GASB 72:62, IFRS 13:42, UK FRS 102:21.9, SOP
valuation for the spill cleanup work. 96-1 6.20—See Appendix X1)
3.1.4 asset retirement obligation (ARO), n—legal or con-
3.1.12 current government environmental record source,
structive obligations associated with the retirement of a tan-
n—any environmental record source available from a govern-
gible long-lived asset that result from the acquisition,
ment or commercial entity, provided the record is updated in
construction, development, or normal operation of a tangible
accordance with the update requirement of Practice E1527.
long-lived asset.
3.1.13 engineering controls, EC, n—physical modifications
3.1.4.1 Discussion—Activities include, but are not limited
to a site or facility (for example, capping, slurry walls, or point
to, demolition, decommissioning, decontamination,
of use water treatment) to reduce or eliminate the potential for
reclamation, restoration, and abandonment.
exposure to chemicals of concern or petroleum products in the
3.1.5 claim, n—demand for payment or compensation.
soil or ground water on the property.
3.1.6 commitment, n—type of liability covering purchase
3.1.13.1 Discussion—Engineering controls are a subset of
obligations that serve to mitigate environmental liabilities.
activity and use limitations.
3.1.6.1 Discussion—An example is an entity continuing a
3.1.14 EnviroFacts, n—EPA database search tool that ac-
property lease obligation indefinitely to defer a remediation or
cesses over 20 current and historical environmental record
asset retirement obligationdueattheendofthelease.SeeASC
sources, including CERCLIS and RCRAInfo.
440.
3.1.15 environmental liabilities, n—asset retirement
obligations, accrued liabilities, commitments, contingencies,
Financial Accounting Standards Board 401 Merritt 7 P.O. Box 5116 Norwalk,
and guarantees associated with any natural conditions or
Connecticut 06856-5116. http://www.fasb.org/
manmadeincidents,includingterrorism,thatposeanunaccept-
Available from IFRS Foundation Columbus Building 7 Westferry Circus
Canary Wharf London E14 4HD UK. https://www.ifrs.org/ able risk to health, safety, property, or the environment that
E2173 − 22
would be the subject of an enforcement action or other legal 3.1.25 IAS 37, n—accounting standard titled “Provisions,
action.(SeeGuideE3123;ASC410,440,450,and460;GASB Contingent Liabilities and Contingent Assets” issued by IASB
49 and 83; IAS 37) in September 1998.
3.1.16 fair value measurement, n—an accounting term for 3.1.26 International Accounting Standards Board, IASB,
n—independentmultinationalaccountingstandardsettingbody
stating valuations of assets or liabilities under current market
conditions and on a comprehensive “exit price” or “arm’s which issues International Financial Reporting Standards
(IFRS), International Accounting Standards (IAS), interpreta-
length” basis, using one of three valuation techniques: market,
cost and income. (ASC 820, GASB 72, IFRS 13). tions and other pronouncements.
3.1.16.1 Discussion—Entities disclosing environmental li-
3.1.27 interperiod equity, n—from GASB Concepts State-
abilities work under the expectations of owners, management
ment 1, the concept that current taxpayers pay for current
and counterparties that valuations and disclosures comply with
servicesandfurtherthatburdenofpaymentforservicetodayis
GAAP and are audited on a regular basis; key assumptions –
not transferred to future taxpayers. (Also intergenerational
which may vary from site to site - include inflation rate,
equity.)
discount rate, forecast duration, and loss contingencies. For
3.1.28 leaking underground storage tank, LUST,
certain environmental liabilities, fair value measurement is
n—common cause of environmental costs and liabilities.
mandatory (for asset retirement obligations see ASC 410-20-
3.1.29 legal obligation, n—duty to carry out what the law
25-4)
requires or a contract asks.
3.1.17 Federal Accounting Standards Advisory Board,
3.1.30 materiality, n—significance of an item to users of a
FASAB, n—U.S. accounting standard-setting body focused on
financial statement that considers all relevant and surrounding
federal entities; established and funded by Secretary of the
circumstances.
Treasury, the Director of the Office of Management and
3.1.30.1 Discussion—A material item is one that its omis-
Budget, and the Comptroller General of the United States.
sion or misstatement is of such a magnitude in the surrounding
3.1.18 Financial Accounting Standards Board, FASB,
circumstances that either the judgment of a reasonable person
n—U.S. accounting standard-setting body focused on private
relying on the financial statement would have been changed or
sector entities; a part of the Financial Accounting Foundation,
influencedbyitsinclusionorcorrectionorthereisasubstantial
3.1.19 financial statements, n—include, but are not limited
likelihood that the item, after assessing the inferences and their
to, statements associated with shareholder reporting, manage-
significance drawn from the given set of facts associated with
rial accounting, financial accounting, tax accounting, registra-
the financial statement, would be viewed as significantly
tion statements, loans, mergers, acquisitions, or divestitures.
altering the information made available to the investor or
Examples include the balance sheet, income statement and
shareholder. Relevant sources of information and references
cash flow statement.
are included in Appendix X2. Note that this definition is not
3.1.19.1 Discussion—Financial statements may include
intended to supersede the definition of materiality in SEC Staff
statements outside of SEC filings.
Accounting Bulletin Topic 1.M, Financial Statements—
Materiality (See X2.3.)
3.1.20 Generally Accepted Accounting Principles, GAAP,
n—framework for US accounting and financial reporting.
3.1.31 National Priorities List, NPL, n—list compiled by
the EPA pursuant to CERCLA 42 USC § 9605(a)(8)(B) of
3.1.21 Government Accounting Standards Board, GASB,
properties with the highest priority for cleanup pursuant to the
n—U.S. accounting standard-setting body focused on non-
EPA’s Hazard Ranking System. (See 40 CFR Part 300.)
federal government units, such as state, county, and municipal
governments; a part of the Financial Accounting Foundation.
3.1.32 obligating event, n—past outcome that confirmed a
financially recognizable obligation. (See GASB 49:11.)
3.1.22 guarantee, n—assurance issued by a guarantor that
remains in effect; examples include, (but are not limited to,
3.1.33 pollution remediation obligations, n—obligations to
financial and performance guarantees and indemnifications,
address the current or potential detrimental effects of existing
“joint and several liability” under CERCLA, and an irrevocable
pollution by participating in pollution remediation activities
letter of credit from a mining company to a state agency
such as site assessments and remediation, as stated in GASB
assuring eventual completion of reclamation work. (See ASC
Statement 49 (November 2006) for non-federal governmental
460 and GASB 70.)
units in the US.
3.1.23 historical government environmental record sources, 3.1.34 Potentially Responsible Party, also PRP, n—any
n—any environmental record source available from a govern-
individual, legal entity, or government—including owners,
ment or commercial entity that is older than the most recent operators, transporters, or generators—potentially responsible
current government environmental record source.
for, or contributing to, conditions that present an unacceptable
risk of harm to human health or the environment and that
3.1.24 historical use information, n—those sources of infor-
would be the subject of an enforcement action or other legal
mation about the history of uses of a property.
action.
3.1.24.1 Discussion—Historical use information is avail-
able from local libraries, historical societies, private resellers, 3.1.35 Public Company Accounting Oversight Board,
or commercial entities. Some examples of the sources are PCAOB, n—nonprofit corporation established by the U.S.
specified and defined in Practice E1527. Congress (Sarbanes-Oxley Act of 2002) to oversee the audits
E2173 − 22
of public companies to protect the interests of investors and 3.2.12 NPV—Net Present Value
further the public interest in the preparation of informative,
3.2.13 PRP—Potentially Responsible Party
accurate, and independent audit reports.
3.2.14 PCAOB—Public Company Accounting Oversight
3.1.35.1 Discussion—The PCAOB subjects auditors to ex-
Board
ternal and independent oversight, a change from self-
3.2.15 RCRA—Resource Conservation and Recovery Act
regulation.
3.2.16 SEC—Securities and Exchange Commission
3.1.36 reasonably possible, adv—likelihood, or probability,
associated with a given event occurring that lies in the range
3.2.17 SEMS—Superfund Enterprise Management System
between remote (less likely) and probable (defined as more
3.2.18 TRI—Toxics Release Inventory
likely than “reasonably possible”).
3.2.19 USEPA—United States Environmental Protection
3.1.36.1 Discussion—The probability values assigned to
Agency
remote, reasonably possible and probable will depend on the
industry, the aggregate number of sites, observations, and
4. Significance and Use
possible outcomes, and the uncertainty associated with esti-
4.1 Significance—This guide provides additional guidance
mating probabilities.
to preparers of environmental disclosures; these materials are
3.1.37 recognition benchmark, n—stages in the assessment
needed to address changing audience needs, the increased
andremediationprocesswhichcreatetheexpectationofamore
regulatory and accounting complexity around environmental
comprehensive or robust estimate. (See GASB 49:12-13,ASC
matters,andtheemergenceofavarietyoflong-termtrendsand
410-30-25-15.)
factors, including but not limited to:
3.1.38 release, n—any spilling, leaking, pumping, pouring,
4.1.1 Number and scope of domestic, and foreign environ-
emitting, emptying, discharging, injecting, escaping, leaching,
mental laws and their implementing regulations;
dumping, or disposing into the environment.
4.1.2 Number and scope of treaties, as well as the imple-
3.1.39 remedial or corrective action, n—all environmental
menting laws and regulations; parties in these treaties include
response activities to an environmental liability.
multilateral organizations and indigenous peoples;
4.1.3 Judicial decisions clarifying the impact of laws,
3.1.40 reporting entity, n—any business or public agency
regulations, and treaties;
preparing a financial statement.
4.1.4 Costs of compliance with environmental regulations;
3.1.41 Resource Conservation and Recovery Act, also
4.1.5 Number of known chemical compounds (see Chemi-
RCRA, n—as amended 42 USC Section 6901 et seq., a major
SM
cal Abstracts Service REGISTRY , which contains over 193
U.S. Federal environmental law.
million unique organic and inorganic substances);
3.1.42 Securities and Exchange Commission, SEC, n—U.S.
4.1.6 Cost and accuracy of soil, sediment, air, soil vapor,
Federal regulator of the securities industry and their related
surface water and groundwater testing equipment and proce-
exchanges
dures;
3.1.43 site, n—real property affected by an environmental
4.1.7 Knowledge about benefits and effects of chemical
liability or a multi-property area defined for a regulatory compounds on human health, ecological receptors, and the
purpose. environment;
4.1.8 Number and efficacy of remedial technologies;
3.1.44 U.S. Environmental Protection Agency, EPA,
4.1.9 Experience with assessing and remediating environ-
n—Federal agency implementing environmental laws and
mental conditions;
regulations.
4.1.10 Assumptions regarding impacts of environmental
3.2 Acronyms and Intialisms:
conditions, through modeling and other forecasting tools;
3.2.1 ARO—Asset Retirement Obligation
4.1.11 Number of environmental, social and governance
3.2.2 ASC—Accounting Standards Codification, issued by
(ESG) metrics and their pace of adoption;
FASB
4.1.12 Frequency and financial impact of counterparty fail-
ure; and
3.2.3 CERCLA—Comprehensive Environmental Response,
4.1.13 Development of comparable accounting standards by
Compensation and Liability Act of 1980
other authorities; and
3.2.4 CERCLIS—Comprehensive Environmental Response,
4.1.14 Investor interest in the impact of these trends and
Compensation and Liability Information System
factors on their investments.
3.2.5 ESG—Environmental, Social, and Governance
4.2 Uses—This guide is intended for use on a voluntary
3.2.6 FASB—Financial Accounting Standards Board
basis by a reporting entity that provides financial and qualita-
3.2.7 GAAP—Generally Accepted Accounting Principles
tive disclosure regarding environmental liabilities. Disclosure
is integrated with preceding elements of financial statements,
3.2.8 GASB—Governmental Accounting Standards Board
namely recognition, measurement, and presentation of envi-
3.2.9 IASB—International Accounting Standards Board
ronmental liabilities, as noted in Fig. 1. (Full explanation of
3.2.10 LUST—Leaking Underground Storage Tank
this framework can be found in FASB Concepts Statement 8,
3.2.11 NPL—National Priorities List September 2010.) With the long-term trends and factors in 4.1,
E2173 − 22
FIG. 1 FASB Conceptual Framework
the issuers of environmental disclosures have found it useful to 4.2.1.7 Contingencies and non-financial metrics related to
regularly report material environmental topics to the public the above items; and
through filings to the Securities and Exchange Commission
4.2.1.8 Note to financial statements confirming that a
(SEC), Form 10-K or 20-F. booked environmental liability conforms to the accounting
definition of a liability, namely that a loss has been incurred
NOTE 1—Many of these trends and factors, as well as the changes to
which will result in future spending that is both probable and
GAAP, have occurred gradually. For example, users of this guide will
likely be aware that chemicals that were not regulated or considered reasonably estimable. See E3123 for further detail.
contamination yesterday may be deemed so tomorrow.
4.2.2 The degree and type of disclosure depends on the
scope and objective of the financial statements. Such state-
4.2.1 Typical environmental disclosures to the public
ments may not always be audited or prepared for the public
include, but are not limited to:
domain.
4.2.1.1 Bookvalueofcurrentenvironmentalliabilities,such
as asset retirement obligations, pollution remediation 4.2.3 For example, users of this guide may need to make
non-public disclosures for the benefit of investors, prospective
obligations, and natural resource damage claims;
4.2.1.2 Book value of product liability costs (for example, asset purchasers, lenders, regulators, insurers, tax authorities,
key customers, and joint venture partners.
recalls) and other litigation related to human health and the
environment; 4.2.4 Users of this guide should be aware that shareholder
concerns, contractual obligations, financial assurance
4.2.1.3 Counts of projects or legal matters, especially over
time, which provide a metric to track if the rate of liability requirements, court decisions, and regulatory directives may
affect their flexibility in the use of this guide.
settlements align with or vary from the rate of incoming
liabilities; 4.2.5 Some larger entities may publish their environmental,
4.2.1.4 Indirect costs such as project and legal services to social and governance (ESG) metrics to communicate com-
oversee liabilities, and guarantees on the long-term perfor- pany policies, progress in meeting emission goals, sustainabil-
mance of counterparties; ity of individual products and services, and the impact of
4.2.1.5 Costs and income associated with contracts and subsidies and taxes. The user should note that ESG metrics are
commitments,suchaspurchaseandsaleagreements,insurance not a part of generally-accepted accounting principles. ESG
contracts, and merger transactions; metrics may lack comparability (see Fig. 1 above) from
4.2.1.6 Voluntary costs to comply with environmental laws, industry to industry, and sometimes company to company.
regulations and treaties; While these ESG metrics constitute a form of environmental
E2173 − 22
disclosure, they are excluded from this Guide. These metrics with regard to the final resolution of factual, technological,
are published by several organizations, including the Sustain- regulatory, legislative, and judicial matters, which could affect
ability Accounting Standards Board. See Guide E2718 for its valuation of environmental liabilities. Under the constraints
further information. of preparation cost and materiality (noted in Fig. 1), users
needing reliable information may experience additional
4.3 Principles: The following principles are an integral part
limitations, such as unaudited cost projections, draft scientific
of this Guide and are intended to be referred to in resolving
findings, or the bounds of attorney-client privilege. Users may
ambiguities or disputes regarding the interpretation of disclo-
encounter decisions identified as uncertainties and observe
sures regarding environmental liabilities.
liabilities priced solely through the costs to implement poten-
4.3.1 Faithful representation—to be useful to the decisions
tial remedial strategies; information on cognitive biases in
of those receiving environmental disclosures, the information
valuing environmental costs and liabilities may be found in
provided must be reliable and trusted. Users of this Guide
Guide E2137.
should note the “Enhancing Qualitative Characteristics” in Fig.
4.3.5 Disclosure Dependent on Circumstances—Not every
1:
environmental liability warrants the same level of detail in its
(a) disclosures should be comparable with similar disclo-
disclosure. Disclosure will be guided by the scope and objec-
sures from competing or peer entities; the use of non-standard
tive of the financial statement, and accordingly, by the mate-
measurements or terminology should be avoided
riality of the environmental liability and the level of informa-
(b) disclosures should be verifiable through cost account-
tion available.
ing and auditing specialists
4.3.6 Comparison with Subsequent Disclosures—
(c) disclosures should consist of timely information, re-
Subsequent disclosures that convey different information re-
flecting an entity’s quarterly financial reporting to its officers
garding the extent or magnitude of the reporting entity’s
(d) disclosures should be understandable through using the
exposures should not be construed as indicating the initial
common reporting terminology in GAAP; for example, an
disclosures were inappropriate or incorrect. Disclosures shall
entity should not describe asset retirement obligations (ASC
be evaluated on the reasonableness of judgments and inquiries
410-20 and GASB 83) with entity-specific project labels.
made at the time and under the circumstances in which they
4.3.2 Continuous Improvement—just as environmental li-
were made. Subsequent disclosures should not be considered
abilities generally accrue across time and with strategic
valid standards to judge the appropriateness of any prior
transactions, any entity should disclose gradual improvements
disclosure based on hindsight, new information, use of devel-
in addressing environmental matters as the scope and scale of
oping analytical techniques, or other factors. However, infor-
issues evolve. A newly-formed entity may find no reason to
mation on trends may be of value to a user of financial
disclose hypothetical losses or describe risks which have not
statements.
occurred; however, an entity with 100 years of operations may
4.3.7 Not Exhaustive—Appropriate disclosure does not nec-
find it essential to disclose an historical review of brands,
essarily mean an exhaustive disclosure; discretion and profes-
facilities and waste disposal practices.
sional judgment are used by estimators, auditors, and the
4.3.3 Transparency—entities will find it useful to supple-
reporting entity’s management in setting limits on the prepa-
ment financial disclosures with performance metrics, including
ration cost, materiality, and volume of information worth
but not limited to:
disclosing as environmental liabilities.
4.3.3.1 Number of properties awaiting reuse and/or sale
because of environmental contamination concerns, including
NOTE 2—For each entity, there is a tradeoff between displaying detailed
those with AULs (see Guide E2091) informationandidentifyingreliableandaccurateinsightsthatareusefulto
user decisions.
4.3.3.2 Number of sites successfully completing regulator-
directed remediation; portion of the liability portfolio in either
4.3.8 Assessment of Risk—As the reporting entity becomes
early or final stages of regulator-directed remediation
aware of an environmental liability, the condition or issue
4.3.3.3 Relevance of emerging contaminants to current and
should be evaluated to assess the actual or potential risk to
historical production
human health and environment and resources. The degree of
4.3.3.4 Relevance of climate adaptation expenses to future
risk is evaluated in context of the current regulatory
operations
environment, an understanding of the specifics of the condition
4.3.3.5 Relevance of pending court cases
or issue, potential future uses, and asset retirement obligations.
4.3.3.6 Limitations to reliably calculating current liabilities
4.3.9 Improved Capital Stewardship—Disclosure, along
4.3.3.7 Comprehensive impact of long-term trends of
with the preceding steps of recognition, measurement, and
booked liabilities – generally available by combining a decade presentation, provides context for environmental liabilities and
or more of historical disclosures – to avoid the impression of
may improve the defensible allocation of capital to resolving
“remediation theater” where environmental reserves are those liabilities as efficiently as possible. Over time, an entity
booked and expended roughly equally without any sense of
mayfinditvaluableorevenessentialtodemonstrateleadership
progress or achievement in addressing contamination. in cost efficiency for understanding, controlling, preventing,
4.3.4 Uncertainty Not Eliminated—Although a reporting and reducing environmental liabilities. The need for intermit-
entity,asofthetimewhenits financial statementsareprepared, tent internal presentations may transform into the need for
may hold a certain position with regard to the existence and regular public disclosures as an entity acquires environmen-
extentofitsenvironmentalliabilities,thereremainsuncertainty tally impaired assets or other environmental liabilities. An
E2173 − 22
entitymayprefertomaketheongoinginvestmentincompetent 5.7.1 Current Government Environmental Record Source—
and continuous data collection and interpretation to draw Any environmental record source available from a government
internal managerial attention toward measuring and ensuring or commercial entity, provided the record is updated in
progress in discharging the liabilities as efficiently as possible. accordance with the update requirement of Practice E1527.
These sources include, but are not limited to, the standard
5. Determining Whether a Disclosure is Warranted—The environmental record sources specified and defined in Practice
E1527. Current government environmental record sources may
following are circumstances known to lead to disclosure
of environmental liabilities: identify responsible parties, environmental suits and costs,
environmental claims, releases, groundwater contamination,
5.1 Enforcement of environmental laws or regulations re-
permits, asset retirement obligations, activity and use
garding investigation, cleanup, maintenance of engineering
limitations, institutional control and engineering control
controls or land use controls or both, and other costs. Such
registrations, and other environmental conditions warranting
circumstance arises if the EPA, a state agency, or a local
disclosure. Examples of current government environmental
government has named the reporting entity a PRP on a site,or
record sources include, but are not limited to:
the reporting entity is required to perform corrective action
5.7.1.1 EPA National Priorities List (NPL) site list,
under RCRAorisrequiredtoassess(andpotentiallyremediate)
5.7.1.2 EPA Superfund Enterprise Management System
a property under any other environmental law or is required to
(SEMS), or predecessor database, CERCLIS,
conduct a natural resources damage assessment and associated
5.7.1.3 Published list of sites and identified responsible
mitigation. Degree of enforcement (federal, state, local, or via
parties under state or local environmental laws,
third-party tort claim) may also impact the timing of expendi-
5.7.1.4 Published list of PRPs,
tures;
5.7.1.5 Lists of leaking underground storage tanks (LUSTs),
5.2 Contractualassumptionofrisk,risktransferagreements,
5.7.1.6 EPA Databases, such as RCRAInfo, Envirofacts,or
and financial assurance requirements. The most familiar forms
financial assurance tracking,
of risk transfer agreements are merger agreements, spinoff
5.7.1.7 Filings to the US Securities and Exchange
agreements,purchaseandsaleagreements,insurancecontracts,
Commission,
captive insurer incorporation forms, remediation trust
5.7.1.8 EPA Toxic Release Inventory (TRI),
agreements, hold-harmless agreements, and indemnity
5.7.1.9 Bureau of Safety and Environmental Enforcement
agreements, often concurrent with contracts for the transfer of
decommissioning estimates for Outer Continental Shelf plat-
property;
forms and pipelines
5.3 Commencement of litigation or assertion of a claim or
5.7.1.10 US Department of Justice – Environmental En-
assessment by a party alleging legal liability on the part of the
forcement Section status reports of ongoing litigation and
reporting entity, or vice versa;
recent settlements
5.7.1.11 National Oceanic and Atmospheric Administration
5.4 Information is known by the reporting entity that
– Damage Assessment, Remediation and Restoration Program
indicates an environmental liability has been incurred;
5.7.1.12 US Department of Interior – Abandoned Mine
5.5 Acquisition or construction of assets which commonly
Land Program
require asset retirement costs at the end of their useful life
5.7.1.13 US Department of Agriculture – Rural Abandoned
(GASB 18 & 83, ASC 410-20, IAS 37);
Mine Program
5.6 Counterparty risk analysis, a routine determination that
5.7.1.14 US Department of Transportation - Pipeline and
a reporting entity has one or more counterparties which lack
Hazardous Materials Safety Administration
the capacity to honor commitments, guarantees, contingencies,
5.7.1.15 US Coast Guard – Oil Spill Liability Trust Fund
and obligations involving the reporting entity. This is also
5.7.2 Historical Government Environmental Record
termed nonperformance risk of default. Where a reporting
Sources—Any environmental record source available from a
entity determines an environmental liability valuation rests
government or commercial entity that is older than the most
solely on a counterparty’s ability to pay, valuation requires an
recent current government environmental record source. His-
understanding of that counterparty’s ability to pay, especially
torical government environmental record sources may identify
in light of the reporting entity’s own ability to pay. (See
responsible parties, historical releases, historical groundwater
definition of counterparty risk in 3.1.11.)
contamination, asset retirement obligations, and other histori-
cal environmental conditions.
5.7 Sources of Information—This guide identifies standard
sources that should be reviewed by a reporting entity to 5.7.3 Historical Use Information—Those sources of infor-
properly determine if conditions warrant disclosure, similar in mation about the history of uses of a property. Historical use
nature to the sources in Guide E3228 – Environmental Knowl- information is available from local libraries, historical
edge Management. These sources should be reasonably societies, private resellers, or commercial entities. Historical
ascertainable, which is defined as information that is (1) use information may identify responsible parties, historical
publicly available, (2) obtainable from its source within rea- releases, historical groundwater contamination, asset retire-
sonable time and cost constraints, and (3) practically review- mentobligations,andotherhistoricalenvironmentalconditions
able. Such sources may include but are not limited to the warranting disclosure. Some examples of historical use infor-
following categories: mation are specified and defined in Practice E1527.
E2173 − 22
5.7.4 Internal Reporting Entity Records—The reporting en- authorities of GAAP. Documents affected include, but are not
tity’s internal environmental records regarding environmental limited to, the reporting entity’s financial statements.As
conditions. It is prudent for reporting companies to corroborate examples, this guide applies to management’s discussion and
internal environmental records with publicly available data analysis accompanying annual financial statements and to
when available. Examples of internal reporting entity records sustainability reports. This guide also applies to seller disclo-
include, but are not limited to: sures for transactional due diligence, bankruptcy, initial public
5.7.4.1 Lists of PRPs (and any other potentially liable offerings, escrow and trust creation, liquidation (for example,
parties) and their allocated shares, their current financial Chapter 7 of the US Bankruptcy Code), insurance
condition,anddetailsonanyfinancialinstrument,insurance,or underwriting,captiveinsurerreserveratiocalculation,financial
entity guarantee validating the long-term viability of their assurance, loan making, and secondary capital issuance.
allocation;
6.2 Flowchart of Disclosures to be Made for Material
5.7.4.2 Environmental suits involving the reporting entity,
Environmental Liabilities (See Fig. 2):
5.7.4.3 Environmental claims or demands involving the
6.2.1 As noted in Fig. 1 and Fig. 2, the obligation to prepare
reporting entity, other than filed suits,
environmental disclosures is subject to constraints of materi-
5.7.4.4 Lists of leaking underground storage tanks (LUSTs),
ality and cost, meaning that environmental matters with a low
5.7.4.5 Titlesearchesofatleast50yearsonknownsitesthat
expected cost and/or a disproportionately high cost to evaluate
are currently or were previously owned or operated by the
may not be worthy of disclosure. Since materiality and cost
reporting entity or predecessor entities;
constraintschangewithanentity’sfinancialcondition,periodic
5.7.4.6 Known payments by the reporting entity for envi-
independent confirmation – including legal and accounting
ronmental claims and costs,
advice – is an essential consideration. Further, there is no
5.7.4.7 Environmental claims or demands involving the
narrow definition of materiality; instead, case law and SEC
reporting entity, other than filed suits,
rulemaking (described in Appendix X2) exist to provide
5.7.4.8 Lease agreements, purchase and sale agreements,
investor protection. If a reporting entity expects that a relevant
and other contractual documents (described in 5.2),
group of environmental liabilities is immaterial (either indi-
5.7.4.9 reporting entity’s environmental records, for
vidually or in the aggregate), a confirming statement to that
example, the results of site assessment or investigation reports,
effect should be made.
environmental audits, monitoring results,
6.2.2 The following data on the material circumstance(s) in
5.7.4.10 Regulatory permits and monitoring reports,
6.2.1 should be prepared by the reporting entity in anticipation
5.7.4.11 Existing asset retirement obligations and other
of possible disclosure:
environmental obligation accruals or provisions, including
6.2.2.1 Statement regarding the judgment or assumptions
recent forecasts of liabilities and projects to settle the liabili-
usedbythe reporting entityregardingthelikelihoodofliability
ties. Financial auditing reports related to these accruals or
from any or all individual sites, actions, suits, cases, claims,
provisions;
requests for payment, notices or demands, and the potential
5.7.4.12 Any predictive listing of “reasonably possible”or
materiality of that liability.
“remote” liability accruals (as described in ASC 450 and
6.2.2.2 Statement regarding the number of sites for which
GASB 62), sometimes termed a “watch list” or “escalation
the reporting entity has been named as a PRP and the number
list”. See examples in Appendix X3;
of claims, suits, actions, demands, requests for payment,
5.7.4.13 Corporate installation records, blueprints, or other
notices, or cases that have been presented to the reporting
documents identifying potential worker, contractor, or other
entity for environmental liabilities.
exposure to the entity’s hazardous materials,
6.2.2.3 Statement regarding the reporting entity’s asset re-
5.7.4.14 Interviews of employees of the reporting entity
tirement obligations, including but not limited to:
concerning potential environmental liabilities, and
(1) Ageneraldescriptionoftheassetretirementobligations
5.7.4.15 Corporate policies and other non-contractual com-
and the associated long-lived assets.
mitments regarding environmental cleanup and disposal stan-
(2) The fair value of assets that are legally restricted for
dards and asset retirement activities.
purposes of settling asset retirement obligations.
5.7.5 Foreign, national, state, and local environmental laws
(3) Areconciliation of the beginning and ending aggregate
(for example, imposing legal obligations associated with the
carrying amount of asset retirement obligations showing sepa-
retirement of the reporting entity’s tangible, long-lived assets).
rately the changes attributable to (a) liabilities incurred in the
5.7.6 Credit rating service reports.
current period, (b) liabilities settled in the current period, (c)
accretion expense, and (d) revisions in estimated cash flows,
6. Content of the Disclosure Accompanying Financial
whenever there is a significant change in one or more of those
Statements
four components during the reporting period. (See Table 1.)
6.1 Application:
6.2.2.4 The reporting entity’s estimate of its environmental
6.1.1 Disclosures addressed by this guide are written by liabilities, a description of the approach used to estimate the
(and are the responsibility of) the reporting entity’s manage- amounts, and the amounts accrued by the reporting entity for
ment. Environmental disclosures – including those in this environmental liabilities.
guide – are intended to fulfill the disclosure obligations of the (1) Environmental liabilities should be stated prior to
SEC,theEuropeanCommission,stockexchanges,andnational reduction for amounts anticipated to be recovered from any
E2173 − 22
FIG. 2 Disclosure of Environmental Liabilities
TABLE 1 ARO Portfolio Tracking Table ($ millions)
ARO Portfolio Tracking Table 2022 2021 2020 2019 2018
A. Asset Retirement Obligation balance – start of fiscal $135 $165 $150 $125 $50
year
B. Liabilities incurred $10 $10 $10 $30 $75
C. Liabilities settled (includes spending and ($15) ($30) ($30) ($5) ($0)
derecognition)
D. Acc
...