The U.S. Securities and Exchange Commission (“SEC”) announced in March 2021 the formation of a Climate and ESG Task Force in the Division of Enforcement with a mandate to identify material gaps or misstatements in issuers’ ESG disclosures.
Yesterday, 23 May 2022, the SEC’s Enforcement Division charged BNY Mellon Investment Adviser, Inc. for misstatements and omissions about ESG considerations in making investment decisions for certain mutual funds that it managed. To settle the charges, BNY Mellon Investment Adviser agreed to pay a $1.5 million penalty.
The SEC’s order finds that, from July 2018 to September 2021, BNY Mellon Investment Adviser represented or implied in various statements that all investments in the funds had undergone an ESG quality review, even though that was not always the case. The order finds that numerous investments held by certain funds did not have an ESG quality review score as of the time of investment.
On 28 April 2022, the SEC charged Vale S.A., a publicly traded Brazilian mining company, and one of the world’s largest iron ore producers, with making false and misleading claims about the safety of its dams prior to the January 2019 collapse of its Brumadinho dam. The collapse killed 270 people, caused environmental and social harm, and led to a loss of more than $4 billion in Vale’s market capitalisation. According to the SEC’s complaint, beginning in 2016, Vale manipulated multiple dam safety audits; obtained numerous fraudulent stability certificates; and regularly misled local governments, communities and investors about the safety of the Brumadinho dam through its ESG disclosures. The SEC’s complaint also alleges that, for years, Vale knew that the Brumadinho dam, which was built to contain potentially toxic byproducts from mining operations, did not meet internationally-recognised standards for dam safety. However, according to the SEC’s complaint, Vale’s public Sustainability Reports and other public filings fraudulently assured investors that the company adhered to the “strictest international practices” in evaluating dam safety and that 100 percent of its dams were certified to be in stable condition.
These recent actions on the part of the SEC indicate its willingness to use ESG as another tool to evaluate the disclosures public companies and investment advisers provide to their investors and to hold companies and advisers accountable for their disclosures and representations to investors.