SEC Enforcement Director Warns Companies Against Misleading ESG Representations

Steven Lofchie Commentary by Steven Lofchie

SEC Director of Enforcement, Gurbir S. Grewal highlighted the challenge of ensuring that companies and investment firms make truthful ESG disclosures, and the tendency of some entities to exaggerate positive ESG activities or downplay negative ESG-related information.

In an address before a symposium sponsored by the Ohio State Law Journal, Director Grewal argued that "ESG issues are increasingly material to investors. It is therefore crucial that when companies speak about the host of issues that may fall under the rubric of ESG – whether climate, social, corporate governance or others – they do so in a way that’s not materially false or misleading."

He emphasized the importance of restoring public trust in financial markets and institutions through rigorous enforcement and compliance efforts, particularly in the realm of ESG disclosures. He raised concerns that investor interest in ESG may tempt issuers to make false statements about their ESG compliance.

Mr. Grewal argued that analyzing misstatements or omissions in the ESG space is "the same as we do everywhere else." He offered examples of SEC enforcement actions that centered on misstatements and omissions including the following:

  • The SEC charged a publicly traded Brazilian mining company for concealing safety risks concerning one of its older dams. The SEC alleged that the company (i) improperly obtained stability declarations for the dam by knowingly using unreliable laboratory data; (ii) concealed material information from its dam safety auditors; (iii) disregarded accepted best practices and minimum safety standards; (iv) removed auditors and firm who threatened company's ability to obtain dam stability declarations; and (v) made false and misleading statements to investors. The company settled the charges for $55 million.
  • The SEC charged a company for disclosing that it had terminated its CEO "without cause" and described the terms of his separation agreement, including, among other things, his right to certain unvested equity-based compensation. The SEC determined that the company failed to disclose that it exercised discretion in terminating the CEO "without cause" under the relevant compensation plan documents, thereby allowing him to retain certain equity-based compensation that would have been forfeited if the company had terminated him for cause.
  • The SEC charged an investment management company for marketing itself to current and prospective clients and to current and prospective investors as a leader in ESG, including through its marketing of "ESG Integrated Products." The SEC determined that the company failed to adequately implement policy requirements for research and monitoring compliance, nor did it adopt and implement reasonable policies and procedures to help ensure that its public representations about its "ESG Integration Policy" were not misleading.

Mr. Grewal said the SEC will be looking out for misleading disclosures on ESG matters.


The cases cited by Mr. Grewal illustrate just how open-ended, and near meaningless, the term "ESG" is. One of the ESG cases cited by Mr. Grewal concerns an issuer failing to disclose the poor condition of its physical property; the second concerns an issuer failing to disclose misconduct by its CEO; and the third enforcement action concerns an investment adviser providing untrue information about its investment process.

Perhaps Mr. Grewal's speech was intended to provide implicit support for SEC Chair Gensler's proposed rule related to greenhouse gas emissions. It actually does the opposite. It demonstrates that the SEC's existing authority to bring enforcement actions for materially misleading statements or omissions on any subject of interest to investors appears sufficient.

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