Below is an article by Greg Rogers and Miki Mitsunari for the October 2007 issue of Environmental Finance.  Greg Roger’s web site is Advanced Environmental Dimensions and he provides tons of great info about financial reporting requirements affecting environmental decisions.

Japan is coming to terms with its recent industrial heritage, bringing a boom to its soil remediation market. But newaccounting rules and investor scrutiny could accelerate the disclosure of some hidden liabilities, say Greg Rogers and Miki Mitsunari

Environmental clean-up is a fast-growing business in Japan.The soil remediation market has grown 30% annually since the country adopted an environmental remediation law in 2003, and regulatory and accounting developments promise to fuel even more clean-up activity in the future.

Government statistics show that approximately 35% of former manufacturing sites in Japan are affected by soil contamination. Due to the prevalence of mixed land use in urban areas, contamination from historical industrial activities is being discovered in commercial and residential areas with increasing frequency.

According to a recent report by the Japanese Ministry of the Environment (MoE), the total value of land (as of 2003) affected by potential soil contamination is estimated at $360 billion–780 billion.The estimated costs of soil remediation are about $140 billion.

Currently, only a small portion of contaminated properties are subject to mandatory site assessment requirements. Most site assessment and remediation activities are initiated voluntarily in connection with property transactions. But anticipated changes in regulations would require more site assessments in the future.

On 15 June, the MoE established a committee to consider expansion of site assessment and remediation requirements under the country’s soil remediation counter-measure law. It is expected that the ministry will expand the scope of sites subject to mandatory assessment. In addition, new regulations – likely to be introduced in 2009 – are expected to offer more flexible risk-based remediation standards that take into account intended future land use.

As environmental regulators seek to expand the legal obligations of owners and operators for remediation of historical pollution conditions, Japanese accounting officials are taking steps that could bring more remediation liabilities on to corporate balance sheets. Current Japanese accounting rules do not require companies to recognise liabilities for future environmental remediation costs. Only a small minority of Japanese companies voluntarily disclose such costs in their sustainability reports. Thus, it is often impossible for investors to evaluate how many sites are contaminated and how much it will cost to clean them up.

However, a new accounting standard could increase transparency in the reporting of environmental remediation liabilities. In connection with an international effort to harmonise global accounting standards (so-called ‘convergence’), the Accounting Standard Board of Japan (ASBJ) released in May 2007 an issue paper on accounting for asset retirement obligations (AROs), with plans to finalise the standard by March 2008.

Please follow this link to read the remainder of the article at the web site of Greg Rogers and Advanced Environmental Dimensions.

Greg Rogers is president of Dallas-based Advanced Environmental Dimensions and counsel with the environmental law firm Guida, Slavich & Flores, and Miki Mitsunari is a Tokyo-based consultant at Mizuho Information & Research Institute. E-mails: rogers@gsfpc.com and miki.mitunari@gene.mizuho-ir.co.jp

This entry was posted on Friday, December 7th, 2007 at 2:02 pm and is filed under ●Brownfields Corporate World: SOX,FIN 47,Sell or Not?.

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