Natural Resources

Wendy Gerwick Couture: Water a growing concern for companies, boards

Associate professor at the University of Idaho College of Law in Boise and teaches securities regulation and other business law courses.May 21, 2014 

Couture Wendy_0178 (3).JPG

Wendy Gerwick Couture

STATESMAN FILE

Water policy is not merely an environmental issue; it's a business issue.

The Securities Exchange Act of 1934 - one of the primary business regulations governing public companies - indirectly regulates water. The law mandates that public companies make periodic disclosures about material issues affecting their businesses and permits shareholders of public companies to include certain proposals on companies' proxy statements. Increasingly, these mandatory disclosures and shareholder proposals relate to water.

First, public companies' mandatory disclosures often include access to water as a key risk factor. For example, Taggares Agriculture Corp., a business formed to acquire, redevelop and operate farmland in the Pacific Northwest, recently filed paperwork to make an initial public offering of its stock and included the following warning: "A lack of availability of water in (the) Columbia Basin, any materially adverse change to our rights to use water on our properties, or any change in the quantity of water we have rights to access, could adversely impact business."

Many public companies also disclose that water pollution threatens their businesses. For instance, Primo Water Corp., a provider of purified bottled water, warned in its most recent Form 10-K annual report: "As demand for water continues to increase and as water becomes scarcer and the quality of available water deteriorates, our business may incur increasing costs or face capacity constraints which could adversely affect our profitability or net sales in the long run."

On the other hand, many public companies also disclose that liability and compliance costs associated with environmental regulations could affect their bottom lines. For example, in its most recent Form 10-K annual report, Idaho-based Hecla Mining Corp. explained that the Clean Water Act requires permits for operations that discharge into U.S. waters and disclosed the following risk: "Adverse outcomes in lawsuits challenging permits or failure to comply with applicable regulations could result in the suspension, denial, or revocation of required permits, which could have a material adverse impact on our cash flows, results of operations, or financial condition."

Second, shareholder proposals related to water fall in the category of "environmental and social issue" proposals, which are grassroots attempts to effectuate corporate change. These proposals usually do not garner majority support from the voting shareholders, but, according to Institutional Shareholder Services Inc., there has been a long-term trend of generally increasing support for these proposals since 1999. As an example, Chevron Corp.'s shareholders will vote at their May 28 meeting on a proposal requesting that the board annually report to shareholders "the results of company policies and practices, above and beyond regulatory requirements, to minimize the adverse water resource and community impacts from the company's hydraulic fracturing operations associated with shale formations."

In sum, water's emergence as a key topic within securities regulation, in the contexts of company disclosures and shareholder proposals, demonstrates both the complexity of business' relationship with water and the necessity that the business community be part of the conversation about our water future.

wgcouture@uidaho.edu

Idaho Statesman is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service