Remember last year’s derailment in Ohio of a Norfolk Southern train carrying vinyl chloride? Tuesday morning, the company announced “a $600 million agreement in principle to resolve a consolidated class action lawsuit relating to the East Palestine derailment. If approved by the court, the agreement will resolve all class action claims within a 20-mile radius from the derailment and, for those residents who choose to participate, personal injury claims within a 10-mile radius from the derailment.”
In February 2023, I looked into the company’s ESG materiality assessment and its financial reports filed with the SEC. You can read that analysis here, but to sum it up – the company created gaps, omissions, misunderstanding and confusion by using different definitions of “materiality” and excluding communities and populations along their chemical transportation routes from their ESG assessment process. For instance, “Emergency response and preparedness” was ranked only as a medium ESG risk even though “Hazardous materials transportation/rail accidents” was disclosed as a financially-material risk in the 10-K.
The 4Q23 press release from January 2024 stated that the company had already taken “a $1.1 billion charge associated with the Eastern Ohio Incident” for reporting year 2023. I didn’t delve into the financial reports for the finer points of how Norfolk Southern accounted/accrued for costs of the derailment to determine if the $600 million is included in the $1.1 billion figure.
Other companies should heed this $1 billion lesson to ensure they have alignment between ESG and financial materiality determinations, rankings and disclosures. A big part of that means that ESG/sustainability staff must closely coordinate with – and possibly take a backseat to – experienced securities counsel as I blogged last month.
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Photo credit: piter2121 – stock.adobe.com
