A number of signs point to the fact that public companies should expect increased scrutiny on whether their environmental-related ESG offerings, practices and controls are consistent with their disclosures, claims and marketing material.
SIGN #1: The Securities and Exchange Commission (SEC or Commission) announced that New Jersey Attorney General Gurbir Grewal will become the next director of its Enforcement Division (Division), after resigning his New Jersey’s attorney general position on July 26.
SIGN #2: On July 29, the SEC announced charges against a founder, former CEO and former executive chairman of a publicly traded corporation, for allegedly repeatedly disseminating false and misleading information – typically by speaking directly to investors through social media – about the corporation’s products and technological accomplishment. In a press conference announcing this enforcement action, Grewal stated, “We will hold all those who make materially false and misleading statements accountable…,” announcing his department’s priorities loud and clear.
SIGN #3: As New Jersey Attorney General, Grewal sued major energy and chemical companies as part of an environmental justice initiative. Grewal has an environmental bent.
SIGN #4: As previously reported on this blog, in March, Acting Chair Lee announced the creation of a Climate and ESG Task Force. The task force is composed of 22 members drawn from various Commission offices and specialized units. The Climate and ESG task force is charged with developing initiatives to identify ESG-related misconduct and analyzing data to identify potential violations. Additionally, the task force aims to identify misstatements in issuers’ disclosure of climate risks and to analyze disclosure and compliance issues related to ESG stakeholders and investors. The SEC has also established a website and intake submission form for tips, referrals, and whistleblower complaints for ESG-related issues. Grewal is expected to work closely with this task force and other SEC Divisions and Offices, including the Division of Corporation Finance, Investment Management, and Examinations. Expect Grewal to use this Task Force to push enforcement.
In sum, the signs above all point to increased SEC enforcement scrutiny on policing potentially misleading environmental statements in the ESG arena. Companies should confirm through strong governance that these environmental claims are in line with disclosures, claims and marketing material.
