The lawsuit demonstrates that the SEC is taking seriously its commitment to identify false and misleading ESG disclosures and related misconduct. With the recently released proposed climate disclosure requirements, we can expect to see increased enforcement actions related to statements on climate risk, however, this action signals that the SEC is likely looking beyond just climate risk to broader ESG issues.
Greenwashing, the practice of providing misleading information regarding a company’s sustainability credentials, is a stated priority for the SEC in 2022. The Vale suit serves as a warning to public companies that greenwashing ESG performance may come at a high price. Companies will need to bring a heightened level of rigor into their ESG reporting and other ESG-related materials, as the SEC has put registrants on notice that it will not hesitate to prosecute companies that make false or misleading statements in ESG disclosures, financial statements, or even marketing materials and blogs. Precision and accuracy will be key.
Public companies should prepare for mandatory climate disclosures and heightened scrutiny of ESG disclosures generally and take steps to ensure the statements they make are accurate. They will need to perform a thorough assessment of relevant ESG risks and opportunities, identify the data required to meet their reporting needs, and enhance their internal controls to ensure data integrity and accountability. Companies that have not already begun to incorporate material ESG issues into their governance and risk management programs should do so now to avoid being the target of an SEC enforcement action.
Special thanks to Eleanor Gass for co-authoring this article.