As we discussed in a previous publication, the SEC’s climate disclosure rule, which was proposed in March 2022, would mandate, for the first time, that public companies in the US disclose climate-related risk and greenhouse gas emissions information beyond the information currently required by existing SEC rules applicable to registration statements and annual reports. Since Fall 2022, companies have been eagerly awaiting the release of the SEC’s final rule. While the timing (and substance) of the final rule is still uncertain, many anticipate the release of the final rule before the end of the year. Even if that is the case, litigation challenging the final rule is expected. Despite the uncertainty regarding the SEC’s final climate disclosure rule, public companies should be aware that the SEC is still focused on ESG.

For example, in March 2021, the SEC announced the creation of a Climate and ESG Task Force in the SEC’s Division of Enforcement, which is mandated with identifying material gaps or misstatements in issuers’ ESG disclosures. In a significant and closely watched case, in late March 2023, the SEC’s Climate and ESG Task Force announced a settlement agreement with Vale S.A. (Vale), a publicly traded Brazilian mining company, for alleged violations of the antifraud and reporting provisions of the federal securities laws. The settlement resolved ongoing litigation regarding disclosures that Vale had made in its ESG and sustainability reporting. In particular, the SEC alleged Vale made false and misleading claims about the safety of its dams. The charges stem from the January 2019 collapse of the Brumadinho dam in Brazil, killing 270 people. The SEC alleged that, for years, Vale knew the dam did not meet internationally-recognized safety standards but continued to assure investors in its sustainability reports and other public filings that all of its dams were certified to be in stable condition. Ultimately, Vale agreed to pay a civil penalty of $25 million and $30.9 million in disgorgement and prejudgment interest.

In its press release, the SEC emphasized the “interplay between the company’s sustainability reports and its obligations under the federal securities laws.” Significantly, the complaint referenced allegedly false and misleading statements in Vale’s periodic reports, as well as its sustainability reports, investor materials and ESG webinars, stating that “public companies can and should be held accountable for material misrepresentations in their ESG-related disclosures, just as they would for any other material misrepresentations.”

Even more recently, in September 2023, the SEC fined DWS Investment Management Americas, Inc. (DWS) $19 million over greenwashing claims and other issues. According to the SEC, DWS allegedly made material misstatements about its controls for incorporating ESG factors into research and investment recommendations for ESG integrated products and failed to adopt and implement policies and procedures reasonably designed to ensure its public statements about the ESG integrated products were accurate. In its press release, the head of the SEC’s Climate and ESG Task Force stated “Whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words…Here, DWS advertised that ESG was in its “DNA,” but, as the SEC’s order finds, its investment professionals failed to follow the ESG investment processes that it marketed.” While this action involved alleged violations under the Advisers Act by an investment advisor, it serves as another example of an enforcement action brought by the SEC involving greenwashing claims.

These actions, along with other actions expected to be announced soon, should serve as a reminder that, with or without a final climate disclosure rule, the SEC is focused on ESG. Publiclytraded companies should carefully assess the accuracy of their ESGrelated disclosures across all publicfacing documents, including voluntary sustainability reports and investor materials, and put in place adequate policies and procedures to ensure the accurate and consistent disclosure of ESG information to the public.