Deferred liabilities are bills that companies put off paying for years, and sometimes try to get out of altogether. For example, employee pensions and environmental cleanups.
We’ll Clean It Up Later
Companies usually avoid talking about deferred liabilities. They’re making great profits now, so why kill the buzz by mentioning money they may owe in the future?
It’s easier to just hope these ticking time bombs go away on their own.
Some deferred liabilities are predictable, like employee pensions. Companies know exactly how much money they’ve promised for employee retirement benefits. But they can still set aside too little money for them by making incorrect assumptions about (for example) how long employees will live.
Environmental liabilities are even less predictable, and thus easier to avoid paying. Corporations have a long history of dodging bills for cleanups like asbestos, heavy metal pollution (lead, mercury etc), oil and gas leaks, and contaminated groundwater. Though sometimes required to set aside cleanup money by the government, companies know they can they can use legal and PR tactics to pay little or nothing.
When an oil company spills millions of gallons into the ocean (like BP in 2010), they know they must pay for it, because everyone saw who did it. But most environmental damage is harder to prove. Methane leaks from fracking wells, for example, are extremely damaging to the climate but totally invisible and hard to measure. Coal ash from coal power plants leaks slowly into groundwater and contaminates drinking supplies.
Forest destruction in foreign countries (really any environmental destruction in foreign countries) is hard to track for the consumers and regulators who would hold companies accountable. And then there’s all that plastic in the ocean.
The point is, deferred liabilities from environmental destruction are greater than ever today, but still really easy for companies to get out of. Some companies set aside financial reserves to cover them, but it’s almost never enough.
So if you’re looking at a company’s financials, be sure to ask about deferred liabilities… especially the environmental kind.