SEC launches ESG Climate Enforcement Task Force to tackle ‘ESG-related misconduct’

One of the world’s most powerful regulators, the US Securities and Exchange Commission (SEC), has announced the formation of a Climate and ESG Task Force to identify what it calls “ESG-related misconduct”.  

The task force will sit within the SEC’s Division of Enforcement and will be led by its Acting Deputy Director of Enforcement, Kelly Gibson, as well as drawing on staff from across the Commission.

It will identify potential ESG violations through data mining, with an initial focus on finding “material gaps or misstatements in issuers’ disclosure of climate risks under existing rules”. In addition to companies, the task force will investigate investment advisers’ and funds’ ESG strategies.

The new body will work closely with the newly-appointed Senior Policy Advisor for Climate and ESG, Satyam Khanna, and with other SEC divisions and offices, including the Division of Examinations, which also recently announced an enhanced focus on climate and ESG-related risks, and will be looking at proxy voting policies and firms’ business continuity plans in the face of catastrophic climate events. This division will also be examining disclosures made by registered investment advisers and funds regarding ESG investment strategies.

Also assisting the task force will be the US’ Division of Corporate Finance, which was recently directed to enhance its focus on climate-related disclosure in public company filings by Acting SEC Chair, Allison Herren Lee. Finally, the task force will work with the Office of the Whistleblower to follow up tips and whistleblower complaints on ESG-related issues.

In response to the growing number of announcements regarding an ‘enhanced focus on ESG and climate’, the two Republican commissioners Hester Peirce and Elad Roisman issued their own ESG announcement, reiterating their well-known  resistance to changing or improving climate risk or other ESG disclosures. The pair note that the divisions of Examination, Enforcement and Corporate Finance are already focused on detecting fraud in any ESG disclosures per the regulations promulgated under the 2010 Commission Guidance Regarding Disclosure Related to Climate Change. “Division staff regularly assess whether climate-related disclosures comply” with existing regulations, they say.

Peirce and Roisman warn that the call for the Division of Corporate Finance to look more closely at companies’ climate disclosures “cannot foreshadow a plan for the staff to issue guidance that would elicit more specific line items or otherwise convert the Commission’s generally principles-based approach to a prescriptive one”. That would require a vote by the commissioners, they noted.