In March of 2021, the U.S. Securities and Exchange Commission (“SEC”) announced the creation of a Climate and ESG Task Force (“Task Force”) in the Division of Enforcement. Prompted by increased investor focus and reliance on climate- and ESG-related disclosure and investment, the Task Force was deputized to identify ESG-related misconduct.
At the time of the announcement, much remained uncertain about the kinds of enforcement actions issuers and investors could expect from the Task Force. The Task Force’s actions to date present a picture of what we can expect from the Task Force in coming years. Some of the Task Force’s notable enforcement actions and rule proposals are outlined below.
The task force defines public disclosure broadly.
In March of this year, the SEC announced a $55.9 million settlement agreement with Brazilian mining company Vale S.A., the largest and most significant settlement obtained by the Task Force. The SEC had previously charged the company with making false and misleading disclosures in relation to a collapsed dam that resulted in numerous deaths and what the SEC called “immeasurable environmental and social harm.” Notably, among the scrutinized disclosures were the public statements made by the company’s CEO in a magazine article about the safety of its dams and other voluntaryreports provided on the company’s website about its ESG efforts, similar to those now made by 96% of S&P 500 companies and 81% of Russell 1000 companies.
Companies are facing increasing pressure to furnish more information to investors and other stakeholders regarding their ESG efforts. The Vale. S.A. charge shows the Task Force is not only scrutinizing public filings such as 10-Ks, proxy statements, and other SEC filings, but voluntary reports included on a company’s website or otherwise made generally available to the public.
Enact—and follow—policies and procedures related to climate and ESG.
In November of 2022, the SEC reached a $4 million dollar settlement with Goldman Sachs Asset Management, L.P. (GSAM) after finding that it marketed two mutual funds and one separately managed account strategy as ESG investments but failed to sufficiently execute the investments as such. That is, GSAM first failed to put in place ESG policies, and subsequently, after putting them in place, failed to adhere to them. The Co-Chief of the Enforcement Division’s Asset management unit noted: “Today’s action reinforces that investment advisers must develop and adhere to their policies and procedures over their investment processes, including ESG research, to ensure investors receive the advisory services they would expect to receive from an ESG investment.”
Internal policies and procedures matter to the Task Force.Those purporting to target ESG investments should have clear policies and procedures with respect to those investments and be careful to follow them.
Companies should remember that ESG captures more than climate-related issues.
Although the Task Force’s primary focus appears to be environmental matters, at least one recent action hinged on a social issue. Last summer, the SEC charged Health Insurance Innovations (“HII”), a Tampa-based health insurance company, and its former CEO for making false statements to its investors and concealing extensive consumer complaints. Specifically, HII falsely told investors that it held its insurance distributors to high compliance standards, which prohibited distributors from making misrepresentations to consumers about its health insurance products. The company also reported 99.99 percent customer satisfaction despite tens of thousands of dissatisfied consumers who complained that HII’s distributors made misrepresentations to sell the health insurance products, charged consumers for products they did not authorize and failed to cancel plans upon consumers’ requests. In a press release, an SEC official stated, “Access to healthcare and consumer satisfaction are increasingly important considerations to investors. It is critical that disclosures are truthful and complete, and we will hold companies and their executives accountable for misleading investors about these factors.”
Rules specifically targeting practices related to ESG could be coming.
Since the formation of the Task Force, the SEC has proposed a range of rules related to climate and ESG that would likely impact issuers and investors. Such proposals range from rules that would enhance and standardize disclosure requirements to a rule that seeks to prohibit misleading or deceptive fund names.
 ESG stands for “environmental, social, and governance,” which refers to an organization’s practices related to climate, sustainability, and other ethical issues.
 SEC Press Release, “Brazilian Mining Company to Pay $55.9 Million to Settle Charges Related to Misleading Disclosures Prior to Deadly Dam Collapse” (Mar. 28, 2023), available at https://www.sec.gov/news/press-release/2023-63.
 Governance and Accountability Institute, Inc., “All-Time High of Sustainability Reports Among Publicly Traded Companies” (2022), available at https://www.ga-institute.com/research/ga-research-directory/sustainability-reporting-trends/2022-sustainability-reporting-in-focus.html.
 SEC Press Release, “SEC Charges Goldman Sachs Asset Management for Failing to Follow its Policies and Procedures Involving ESG Investments” (Nov. 22, 2022), available at https://www.sec.gov/news/press-release/2022-209.
 SEC Press Release, “SEC Charges Tampa-Based Health Insurance Distributor and its Former CEO with Making False Statements to Investors” (Jul. 20, 2022), available at https://www.sec.gov/news/press-release/2022-126.
 See SEC Press Release, “SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors” (Mar. 21, 2022), available at https://www.sec.gov/news/press-release/2022-46; see also SEC Press Release, “SEC Proposes Rule Changes to Prevent Misleading or Deceptive Fund Names” (May 25, 2022), available at https://www.sec.gov/news/press-release/2022-91.
Shin Song is a member of the Capital Markets practice group of Wyrick Robbins, which represents public company clients across a broad range of industries in connection with their SEC reporting and corporate matters, and significant financing transactions. Christopher Agoranos is a third-year law student at the University of North Carolina School of Law and was a summer associate at Wyrick Robbins in 2023. The Capital Markets group publishes Client Alerts periodically as a service to clients and friends. The purpose of this Client Alert is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.