Several recent actions and statements made by the U.S. Securities and Exchange Commission (SEC) have underscored its plans to prioritize enforcement of climate change and other environmental, social, and governance (ESG) issues in 2021.
- On February 1, 2021, the SEC announced Satyam Khanna had filled its newly created role of Senior Policy Advisor for Climate and ESG to advise the agency on ESG matters and advance related new initiatives across its offices and divisions.
- On February 24, 2021, SEC Acting Chair Allison Herren Lee directed the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings. As part of an enhanced focus in this area, Lee said staff will review the extent to which public companies address the topics identified by the SEC in guidance it provided in 2010 with regard to existing disclosure requirements as they apply to climate change matters.
- On February 26, 2021, the SEC’s Office of Investor Education and Advocacy issued an Investor bulletin posted to investor.gov to educate investors about ESG Funds, including important questions to ask if considering whether investing in them is right for them.
- On March 2, 2021, the SEC announced it is seeking public comment through May 5, 2021, on the framework for addressing names of registered investment companies and business development companies that are likely to mislead investors about a fund’s investments and risks, including climate and ESG-related issues.
- On March 3, 2021, the SEC announced its enforcement priorities for 2021, including a greater focus on climate-related risks.
- On March 4, 2021, the SEC announced the creation of a 22-member Climate and ESG Task Force in its Division of Enforcement, saying, “Consistent with increased investor focus, and reliance on climate and ESG-related disclosure and investment, the Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct.”
- On March 15, 2021, during a speech to the Center for American Progress, Acting Chair Lee said “climate and ESG are front and center for the SEC.”
- On March 22, 2021, in response to increased investor demand for such information, the SEC launched a dedicated web page to bring together agency actions and the latest information about climate and ESG investing.
The Securities Act of 1933 and the Securities Exchange Act of 1934 require that publicly traded companies make appropriate ESG disclosures. Several bills have been introduced in Congress that would necessitate companies issue additional ESG disclosure above that which is already required.
The SEC’s new Climate and ESG Task Force will focus on reviewing the filings made by publicly traded firms and red flag any examples of “greenwashing”, defined as conveying a false impression or providing misleading information about how a company’s products are environmentally sound.
The task force will also focus on misrepresentations and omissions relating to ESG disclosure compliance matters and refer matters to enforcement as necessary.
ESG Questions to Ask
When it comes to the ‘E’ or environmental requirement, is your firm complying with all relevant environmental laws? What about pollution or air quality laws? Has an environmental agency ever cited or fined your firm for any shortcomings?
The ‘S’ or social aspect deals with such things as human-rights issues and the health and safety of employees. For instance, if a company is relying on child labor in overseas factories, there are certain disclosures that should be made. Trying to hide or omit material information relating to such is detrimental. Companies should also disclose facts related to their employee diversity and inclusivity composition and efforts.
The ‘G’ or governance aspect is concerned with the way your company is run. How do your ethics and compliance programs deal with certain issues? Is the composition of your board of directors and management team diverse and inclusive? The SEC’s Climate and ESG Task Force will be reviewing the disclosures made in filings and compare to real practice. They may levy penalties for firms found guilty of omissions, misrepresentations or obscurification.
In light of the SEC’s Climate and ESG enforcement initiative, your firm’s senior management team should engage with internal and external stakeholders to define and assess the material ESG issues specific to your organization. Only then can there be a useful dialogue among senior management, the board of directors, legal counsel, and compliance to develop appropriate policies and procedures to ensure accuracy and consistency of all ESG-related disclosure.
The experienced specialists at Jacko Law Group can help your firm meet the SEC’s filing requirements for ESG disclosure. To schedule a consultation, contact Jacko Law Group at (619) 298-2882 or visit us online at jackolg.com.