The Administration’s engagement on these issues coincides with the increased focus by investors and people on Environmental, Social and Governance (“ESG”) issues. Blackrock has now followed its open letter from past year identifying climate change as a defining factor in companies’ long-term prospects with its 2021 Stewardship Expectations which highlight’s BlackRock’s”certainty that sustainability risk — and climate risk specifically — is investment risk.”
Furthering this attention, the Securities and Exchange Commission (“SEC”) created a Climate and ESG Task Force in its Division of Enforcement in early March to identify possible misconduct associated with ESG-related disclosures. The SEC said that the task force will utilize”sophisticated data analysis to mine and assess information across registrants to identify possible violations” and the Task Force’s initial objective is to identify any material gaps or misstatements in issuers’ disclosure of climate risks under present rules. The task force may also examine compliance and disclosure issues regarding investment advisers’ and funds’ ESG strategies.
Acting SEC Chair Allison Herren Lee has also asked the SEC staff to evaluate the SEC’s”disclosure rules with an eye toward easing the disclosure of consistent, comparable, and reliable information on climate change.” At precisely the same period, the SEC is looking for public input on climate modification disclosures. The SEC has released a list of 15 questions seeking public input on creating disclosure of consistent, comparable, and reliable information on climate change, the materiality of climate-related disclosures, and also the costs and benefits of different regulatory approaches to climate disclosure.
It seems highly likely that the activities the SEC will take under its new Task Force and also”enhanced focus” on climate change and ESG disclosures will be more competitive than that which followed the issuance of the SEC’s 2010 Climate Change Guidance. Issuers should expect new rules that are much more prescriptive and extensive than the fundamentals predicated 2010 Guidance. Public companies should consider a comprehensive overview of the ESG-related disclosures that have been filed with the SEC to date to identify any gaps and to verify and verify information supplied in such disclosures or that is incorporated by reference in future filings. Such a gap analysis will help rank issuers for a demanding and robust review of ESG and climate modification disclosures going forward. Issuers who’ve been feeling pressure from investors should now anticipate more requirements from the SEC to deliver clear statements regarding ESG matters. Issuers need to be sure that any statements are supportable rather than seen as an attempt at”green-washing.” Courts may discover that unsupportable statements on environmental initiatives are not mere puffery but actionable causes of actions under the anti-fraud laws.
