When a company increases their environmental reserves, quarterly earnings (and then shareholder equity) usually decrease by the same amount. If this happens once and if this amount is immaterial, that is where the impact usually ends.

However, for most companies with environmental liabilities, new data or issues (or acquisitions) crop up within a year or two and reserves need updating. Here is where the shareholders come in:

-    Did the shareholders get the benefit of a dollar-for-dollar reduction in liability for capital spent on environmental clean ups?
-    Did new information or issues lead to a timely reassessment of future environmental spending?
-    Did the results of that quantification promptly get to the reserve?

Environmental reserves matter to a range of stakeholders, from the shareholders to employees and regulators. Accuracy, reliability, and consistency with measurement of similar contingent liabilities are all important.

If a company understates environmental liabilities by $50 million, then it is overstating shareholder book value by the same amount. If an investor trusts the pension cost forecast as accurate, prepared with rigor, do they expect environmental reserve estimates to be managed to a different standard?