SEC Climate and ESG Task Force Issues First Enforcement Action

The SEC’s Climate and ESG Task Force has now issued its first enforcement motion.  The SEC has introduced a 76-page grievance in federal district court docket towards Vale, S.A., a Brazilian mining firm, alleging that Vale “ma[de] false and misleading claims about the safety of its dams.”  Considerably, Vale “regularly misled local governments, communities, and investors about the safety of the Brumadinho dam through its environmental, social, and governance (ESG) disclosures.”  (emphasis added)  

In essence, the SEC has introduced a traditional enforcement motion towards an organization for allegedly deceptive disclosures–and these disclosures will not be simply current in typical SEC types (e.g, 20-F and 6-Okay), or in investor displays, however within the separate ESG reviews issued by Vale.  As acknowledged within the SEC’s grievance, the “false statements to investors [were] in SEC filings, the 2016 and 2017 Sustainability Reports, and the 2018 ESG Webinar.”  This enforcement motion by the SEC demonstrates that statements made in ESG reviews ought to now be thought-about as ripe for litigation–whether public enforcement actions or non-public securities litigation–as traditional sources of disclosures.    

Notably, the grievance additionally options allegations regarding company governance failures and issues with the auditing course of associated to the ESG reviews and different disclosures.  The presence of those allegations could act to bolster the SEC’s concentrate on company governance and attestation in its proposed necessary local weather disclosures. 

According to the SEC’s complaint, beginning in 2016, Vale manipulated multiple dam safety audits; obtained numerous fraudulent stability certificates; and regularly misled local governments, communities, and investors about the safety of the Brumadinho dam through its environmental, social, and governance (ESG) disclosures. . . . “Many traders depend on ESG disclosures like these contained in Vale’s annual Sustainability Reviews and different public filings to make knowledgeable funding selections,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. . . . The SEC announced in March 2021 the formation of a Climate and ESG Task Force in the Division of Enforcement with a mandate to identify material gaps or misstatements in issuers’ ESG disclosures, like the false and misleading claims made by Vale.”

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