SEC Investigation Indicates Focus on “S” Issues

By Alma Angotti

As we have noted in many blog posts previously, the US Securities and Exchange Commission has repeatedly indicated its intention to focus more on issues falling under the Environmental, Social, and Governance (ESG) categories. While many of the SEC’s actions have had a strong focus on climate, one of the SEC’s most recent undertakings, an investigation of Activision Blizzard for workplace harassment and discrimination issues, may indicate that matters falling under the “S” tag are ripe for review.


Video Game Company Under SEC Investigation for Workplace Harassment and Discrimination Issues

On September 20, 2021, a spokesperson for Activision Blizzard, a video game company, announced that it was under investigation by the SEC in relation to its disclosures on employment matters, and the company confirmed in a press release issued September 21, 2021, that it was “complying with a recent SEC subpoena issued to the company and several current and former employees and executives regarding disclosures on employment matters and related issues.” This news comes on the back of recent allegations of widespread sexual misconduct and discriminatory practices that included a lawsuit by the California Department of Fair Employment and Housing in July 2021 based on a “frat boy” culture at the company, followed by charges of unfair labor practices by the Communications Workers of America in September. The company also faces a shareholder lawsuit for failing to disclose the action in California and has stated that it is cooperating in an Equal Employment Opportunity Commission investigation.


SEC is Not Waiting for Disclosure Requirements to Pursue ESG Issues

While the SEC is currently working on new disclosure requirements relating to climate and ESG, its recent actions reflect the SEC’s assertion that it has always had authority to pursue actions based on materially misleading disclosures of all types. In March 2021, the SEC announced the creation of a Climate and ESG Task Force that would address “ESG-related misconduct,” however, the SEC has long had authority to pursue companies that have made material misstatements in their disclosures, including those related to climate or, as in this case, employment matters. It has recently exercised this authority in response to potential “greenwashing,” the practice of providing misleading information regarding the sustainability credentials of financial products, on the part of asset managers, and the action against Activision Blizzard demonstrates that it may wield this authority to tackle social issues, as well. 

This SEC’s recent activity demonstrates that companies must be vigilant in their reporting of non-financial information that may meet the SEC’s materiality threshold, taking care to ensure that all disclosures are complete and accurate and that they can back up any claims they make relating to environmental or social issues.

Alma Angotti, Partner

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