European listed companies in the energy and mining sector provide, to say the least, sparse information on future environmental costs in their annual reports. Researchers believe that stricter guidelines are required as the lack of information may lead to underestimation of environmental liabilities, resulting in that future generations may have to bear the burden of cleanup costs.
"I believe that the future environmental liabilities such as decommissioning costs are often underestimated and few understand the burden these costs might impose on future generations. If, for example, an oil & gas company fails, it costs an incredible amount to clean up after old oil wells and the risk is great that the taxpayers will have to pay the bill. Therefore, it is important that environmental obligations are made visible to investors, lenders and the public so that we can discuss the problem", says Mari Paananen, associate professor of business administration at the School of Business, Economics and Law at the University of Gothenburg.
In fact, as there is no clear claimant for this type of future obligations, there is little demand for information either.
"The International Accounting Standards Board* needs to provide clearer requirements about what information should be included in the annual reports in order to make it possible to assess environmental liabilities. I think that such guidelines would make companies inclined to disclose more information and would also provide, for example, auditors a mandate to demand specific information ", says Mari Paananen.
