SEC Announces New Enforcement Task Force On Climate and ESG
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  • SEC Announces New Enforcement Task Force On Climate And ESG

    On March 4, 2021, the Securities and Exchange Commission announced the creation of a Climate and ESG Task Force in the Division of Enforcement.  SEC Press Release 2021-42 (March 4, 2021).  The task force, led by Kelly L. Gibson, the Acting Deputy Director of Enforcement, and comprising 22 members, will aim to “develop initiatives to proactively identify ESG-related misconduct.”  Id.  The task force’s initial focus will be the identification of material gaps and misstatements in issuers’ disclosure of climate risks, and “will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.”  Id.  It is not clear why the SEC concluded that this specific subject matter merits its own task force, and it is worth noting that recent investigations of climate disclosures by other regulators have faced significant challenges.

    The only explanation provided by the SEC for its decision to create this task force is that it is “[c]onsistent with increasing investor focus and reliance on climate and ESG-related disclosure and investment.”  The SEC did not contend, for example, that they have seen any increase in material misstatements or omissions in connection with climate and ESG-related disclosures.  But this announcement is not the only step in this direction by the SEC.  Indeed, this announcement came only one day after the SEC’s Division of Examination described a focus on climate and ESG-related risks as part of its examination priorities for 2021.  SEC Press Release 2021-39 (March 3, 2021).

    The two Republican-appointed SEC commissioners, Hester Peirce and Elad Roisman, issued a statement following the announcement of the task force.  While stopping short of disagreeing with the decision, Commissioners Peirce and Rossman stated that the “new climate-related announcements raise more questions than they answer.”  Hester M. Peirce & Elad L. Roisman, Commissioners, SEC, Enhancing Focus on the SEC’s Enhanced Climate Change Efforts (March 4, 2021).  For instance, they pointed out that “the Commission has not voted on any new standards or expectations relating to climate-related disclosure.”  And they noted that the SEC’s Division of Corporation Finance has been reviewing disclosures and assessing compliance on issues that fall under the ESG umbrella for decades.  As such, they “assume that the new initiative is simply a continuation of the work the staff has been doing for more than a decade and not a program to assess public filers’ disclosure against any new standards or expectations.” (emphasis in original).

    Of course, even if the new task force is not applying new standards, the mere fact that 22 members of the Division of Enforcement are training their eyes on a particular subject matter may create pressure to identify wrongdoing.  At the very least, it will lead to more inquiries and questions regarding how issuers and other entities assess and describe ESG and climate-related risks. 
    CATEGORIES: Enforcement ActionsSEC