SEC Announces New Climate and ESG Task Force in Division of Enforcement

Kramer Levin Naftalis & Frankel LLP

On March 4, the U.S. Securities and Exchange Commission (SEC) announced the creation of a Climate and ESG Task Force in the Division of Enforcement. Climate risks and sustainability have been of increasingly critical interest to shareholders and the announcement flags the development of the Task Force as “[c]onsistent with increasing investor focus and reliance on climate and ESG-related disclosure and investment.” The wide-reaching effort, led by Acting Deputy Director of Enforcement Kelly L. Gibson, will develop initiatives to proactively identify ESG-related misconduct and coordinate division resources. The task force’s initial focus will be to investigate material gaps or misstatements in issuers’ disclosures of climate risks under current disclosure requirements. It will also investigate ESG disclosure and compliance issues relating to asset managers and funds, as well as tips, referrals and whistleblower complaints on ESG-related issues. The task force will use sophisticated data analysis to mine and assess information across registrants to identify potential violations. It will also work closely with other SEC divisions and offices, including the divisions of Corporation Finance, Investment Management and Examinations.

The announcement is the latest in a string of moves by the SEC under the Biden administration to strengthen its oversight of environmental, social and governance issues. In January, the president issued an executive order laying out his administration’s goals for addressing the climate crisis. Shortly thereafter, the SEC announced the appointment of Satyam Khanna as its senior policy adviser for climate and ESG, tasked with advising the agency on ESG issues and advancing ESG initiatives across the SEC’s offices and divisions. And on Feb. 24, the SEC’s acting chair, Allison Herren Lee, directed the Division of Corporation Finance to enhance its focus on climate-related disclosures in public company filings. This enhanced focus will include a review of guidance issued in 2010 concerning the application of existing disclosure requirements to climate change matters, with the goal of updating the guidance to reflect developments in the past decade. The Enforcement Division’s task force is intended to complement these other initiatives.

The Biden administration’s actions reflect a considerable change from the hands-off approach to ESG considerations taken by the SEC in the past, which largely encouraged market participants to self-regulate. Issuers, investment advisers and funds can expect increased attention to ESG-related issues from the SEC in the coming months and years, including through enforcement actions.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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