The SEC recently announced its annual summary of enforcement activities. Among the points to be highlighted, it chose its efforts to enforce ESG-related issues. ESG was one of just a few issues the SEC highlighted; others were crypto, cybersecurity and compliance, and the Foreign Corrupt Practices Act. The inclusion of ESG issues in this summary reflects the significant priority the SEC continues to place in this area.
In particular, the SEC decided to highlight three enforcement actions related to ESG, two of which have been widely reported (including on this blog) (https://insights.mintz.com/post/102hton/a-diffuse-mission-for-the -secs-climate-and-esg-task-force; https://insights.mintz.com/post/102ho57/sec-climate-and-esg-task-force-issues-first-enforcement-action). (These two lawsuits involved misrepresentations in ESG disclosures and misstatements about the use of ESG considerations in making investments.) But the third enforcement action identified by the SEC involved charges against a company that “identified itself as a provider of advisory services that marketed Islamic, or Sharia law, but failed to adopt and implement written policies and procedures that addressed how compliance with Sharia could be ensured on an ongoing basis. While the fact that the SEC indicted a company for allegedly misleading disclosures is hardly surprising, the fact that it chose to include allegations of non-compliance with Sharia guidance in its compilation of ESG enforcement actions is notable. This suggests a broader or more diffuse definition of ESG concerns than usual.
In any case, the fact that the SEC has chosen to highlight ESG enforcement actions as part of its annual update reflects the SEC’s continued focus on these issues, and as such, further enforcement action in this area should be expected in the coming year.
Environmental, social and governance (ESG) concerns are becoming increasingly important to many investors. As a result, the department focused on these issues in relation to publicly traded companies and investment products and strategies. In doing so, employees apply established principles of materiality, accuracy of disclosure and fiduciary duty as codified in federal statutes, regulations and case law. These efforts resulted in enforcement action by the SEC. . . .