Environmental, social, and governance (ESG) concerns have grown increasingly important to many investors. As a result, the Division has focused attention on these issues with respect to public companies and investment products and strategies. In doing so, the staff applies time-tested principles concerning materiality, accuracy of disclosures, and fiduciary duty, as codified in federal statutes, regulations, and case law. These efforts resulted in SEC enforcement actions including:
– An action charging BNY Mellon Investment Adviser, Inc. for materially misleading statements and omissions about its consideration of ESG principles in making investment decisions for certain mutual funds.
– A litigated matter charging Vale S.A., one of the world’s largest iron ore producers, with allegedly making false and misleading claims to local governments, communities, and investors about the safety of its dams prior to the collapse of the Brumadinho dam in Brazil, which killed 270 people, caused serious environmental and social harm, and reduced the company’s market capitalization by more than $4 billion.
– Charges against robo-adviser Wahed Invest, LLC, which had marketed itself as providing advisory services compliant with Islamic, or Shari’ah law, but failed to adopt and implement written policies and procedures addressing how it would assure Shari’ah compliance on an ongoing basis.
These are part of the SEC’s new ESG and Climate Enforcement Task Force announced last year and their stated prioritization of ESG as a topic for examinations. In addition, according to this article from New Private Markets, the examinations “have become more targeted and sophisticated in the types of information they look for.” Two areas the article points to are:
- greenhouse gas emission measurement, calculation methods and whether the data is communicated to investors
- how companies that signed on to industry frameworks/commitments are integrating those into their processes, along with oversight and monitoring.
The data addendum doesn’t call out the numbers related to ESG matters. But there is no doubt that SEC’s ESG enforcement trends are on the rise and companies need to pay careful attention to ESG disclosures and be confident in their data verification, validation and reporting controls.