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Covering SEC, CFTC, FINRA, PCAOB, States, Exchanges, & FCA Enforcement Activities

New SEC Enforcement Task Force Targets Environmental, Social, and Governance Issues

As political leaders continue to debate how to address climate change, the SEC is poised to take (enforcement) action. In the latest example of how the Biden Administration is influencing the priorities of the SEC, the agency recently announced the creation of a Climate and Environmental, Social and Governance (ESG) Task Force in the Division of Enforcement. According to the SEC, the task force’s “initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.” The task force will also focus on investment adviser and funds, analyzing their ESG strategies for disclosure and compliance issues.

The task force will be led by Kelly Gibson, the Acting Deputy Director of Enforcement, and will include members from across the SEC. The formation comes on the heels of an announcement by the Division of Examinations (formerly known as the Office of Compliance, Inspections and Examinations) that scrutiny of disaster recovery plans for climate events and their related disclosures will be a key exam priority for 2021, and it follows the appointment of Satyam Khanna as a Senior Policy Advisor for Climate and ESG, highlighting the importance of this issue under the new Administration. Furthermore, the Division of Corporation Finance has also been directed to focus on climate-related disclosures in public filings. Clearly, the SEC is making a concerted effort to devote resources to an area that has garnered increasing attention from investors and the market over the past few years.

While the task force stated that it will be working initially to examine disclosures “under existing rules,” that may not be the case for very long. With the Divisions of Enforcement, Examinations, and Corporation Finance collectively involved and with the appointment of a new Senior Policy Advisor, the SEC is taking aim at ESG issues, and it seems highly likely that the next step in this effort may be to update the Commission’s 2010 guidance in this area. Indeed, Acting Chair Allison Herren Lee recently suggested that Commission staff would begin taking the insights from this work to update the 2010 guidance based on the evolution of this area over the past decade.

Though we anticipate that the task force will initiate investigations and bring enforcement actions based on the current interpretation, we anticipate that the likely arrival of updated guidance will usher in even more enforcement activity in the years that follow. For issuers and registrants who have not thought about their climate change and other ESG disclosures for many years, the time is now to revisit these important issues and prepare for enhanced scrutiny.

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March 9, 2021
Written by: Michael MacPhail and David W. Porteous
Category: Compliance and Supervision, Investment Advisers and Broker Dealers, Public Companies, Accounting, and Auditing

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