The past few weeks have seen a flurry of ESG-related announcements coming from the SEC Acting Chair and staff. The most recent press release announced that the SEC has created a Climate and ESG Task Force in the Division of Enforcement:
[T]he Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct. The task force will also coordinate the effective use of Division resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations.
The initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules. The task force will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.
SEC registrants may be wondering if these announcements change their legal obligations and what actions they should take in response in order to ensure compliance.
This announcement, like the others, does not relate to any new rules for which registrants need to prepare. Instead, these statements should be viewed as a reminder to registrants that existing statutes and regulations are applicable when it comes to ESG. As such, registrants may wish to evaluate the effectiveness of their disclosure controls and procedures as it relates to climate and other ESG disclosure. To the extent that ESG information—like any other information—is material to investors and clients, it must be disclosed. This, of course, means that securities law violations can occur in the ESG space. And if the new Climate and ESG Task Force recommends action against market participants, those alleged to have broken the law will, as always, need to carefully consider whether to settle with the SEC or litigate and let the courts decide whether a violation has occurred.
It is worth noting that Commissioners Peirce and Roisman, who together make up one half of the current Commission, issued their own statement in response to this press release expressing confusion with respect to the recent announcements and asking: “Do these announcements represent a change from current Commission practices or a continuation of the status quo with a new public relations twist?” The skepticism indicates that there will not likely be a noticeable change in Commission action until a new SEC Chairman is sworn into office. Gary Gensler, President Biden’s nominee to chair the SEC, testified before the Senate Committee on Banking, Housing, and Urban Affairs on March 2, 2021, and is expected to be confirmed by the Senate as early as this month and sworn in soon as SEC Chairman. In that role, he will determine the SEC’s agenda for the administration. Mr. Gensler has not yet commented on these newly announced policy initiatives, but has indicated that he believes that investors consider ESG disclosures material to their investment decisions. Hence, the question going forward is not whether Mr. Gensler, if confirmed, will advance new ESG policies, but how he will do so.
For more information on previous ESG announcements, please see the Mayer Brown legal update on Acting Chair Lee’s announcement that the agency will be focusing on public companies’ climate change disclosures.