Last Thursday, the U.S. Securities and Exchange Commission (SEC) charged Vale S.A., a Brazilian mining company and one of the world’s largest iron ore producers, with violating antifraud and reporting provisions of the federal securities laws by making false and misleading statements about dam safety in the company’s sustainability reports and other environmental, social, and governance (ESG) disclosures. The lawsuit is the first SEC enforcement action focusing on false and misleading ESG disclosures since the agency created its Climate and ESG Task Force in March 2021. The Task Force and the lawsuit against Vale highlight the SEC’s increased focus on ESG matters and underscore the importance of taking care when preparing sustainability reports and other ESG-related disclosures.
The charges against Vale stem from the 2019 collapse of the company’s Brumadinho dam, which killed 270 people, released nearly 12 million cubic tons of mining waste into the environment, and led to a loss of more than $4 billion in Vale’s market capitalization. The SEC’s complaint alleges that Vale manipulated dam safety audits, obtained fraudulent dam stability certificates, and misled investors about the safety of the Brumadinho dam through the company’s ESG disclosures, including its voluntary annual sustainability reports and ESG-related investor presentations and webinars.
The complaint alleges that Vale knew that the Brumadinho dam did not meet internationally recognized dam safety standards, but nonetheless stated in its ESG disclosures that it adhered to the “strictest international practices” in evaluating dam safety and that 100 percent of its dams were certified to be in stable condition.
The complaint also notes that Vale made public commitments to dam safety following the 2015 collapse of its Fundão dam near Mariana, Brazil, which killed 19 people and released 43.7 million cubic meters of mine tailings into the Doce River. The SEC alleges that Vale’s ESG disclosures since 2015 suggest that these dam safety commitments were honored, and that the disclosures “were intended to leave no doubt that [Vale] had learned from the Mariana dam disaster and had mitigated the future risk of failure at its other tailings dams.”
In response to the complaint, Vale issued a public statement that it "denies the SEC's allegations, including the allegation that its disclosures violated U.S. law, and will vigorously defend this case."
In discussing the lawsuit, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated that “many investors rely on ESG disclosures like those contained in Vale’s annual Sustainability Reports and other public filings to make informed investment decisions. By allegedly manipulating those disclosures, Vale compounded the social and environmental harm caused by the Brumadinho dam’s tragic collapse and undermined investors’ ability to evaluate the risks posed by Vale’s securities.” Melissa Hodgman, Associate Director of the Division of Enforcement, also noted that the lawsuit “shows that we will aggressively protect our markets from wrongdoers, no matter where they are in the world.”
The Vale lawsuit highlights the need for publicly traded companies to take care in preparing sustainability reports and other ESG-related disclosures. The SEC is beginning to pay increased attention to this area, and more ESG-related enforcement actions may follow over the coming years. As noted above, the SEC launched a Climate and ESG Task Force within its Division of Enforcement in March 2021. The Task Force will develop initiatives to proactively identify ESG-related misconduct and will coordinate the effective use of agency resources to identify potential violations. Last month, the SEC also issued its long-anticipated climate change disclosure rule, which is the subject of its own Client Alert.