by John F. Savarese, Wayne M. Carlin, David B. Anders, and Carmen X. W. Lu
Left to right: John F. Savarese, Wayne M. Carlin, David B. Anders and Carmen X. W. Lu. (Photos courtesy of Wachtell, Lipton, Rosen & Katz)
The U.S. Securities and Exchange Commission (“SEC”) has disbanded its Climate and ESG Task Force in the Division of Enforcement. The Task Force was established in March 2021 with the purpose of identifying ESG-related misconduct, including material gaps or misstatements in issuers’ disclosure of climate risks, and assessing disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies. According to the SEC, the “expertise developed by the task force now resides across the Division” signaling that the SEC will continue to pursue ESG-related matters as part of its broader enforcement strategy.
The disbanding of the Climate and ESG Task Force is another sign of the political headwinds that have already stalled SEC rule making on climate, human capital and board diversity as well as proposed rules that would require investment companies and investment advisers to disclose additional informational on their ESG investment practices. However, regulatory concerns on greenwashing continue to grow and other regulators have sought to tackle the issue in recent months: California has adopted new disclosure rules on emissions, climate risks, and carbon offsets; the Federal Trade Commission is expected to issue updates to its Green Guides; the European Union’s greenwashing directive which entered into force in March prohibits unsubstantiated environmental claims; and the U.K.’s Financial Conduct Authority’s anti-greenwashing rule, which came into effect in May, requires that companies’ sustainability related claims about their products and services be “fair, clear and not misleading.”
The SEC has also continued to pursue ESG-related enforcement actions. Last week, the SEC announced that it had charged Keurig Dr Pepper with reporting violations under Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1 for making inaccurate statements regarding the recyclability of its K-Cup single use beverage pods. Keurig had disclosed in its annual reports that it had conducted extensive testing with recycling facilities and concluded that its pods could be “effectively recycled.” Keurig, however, did not disclose that two recycling companies had indicated that they did not intend to accept the pods for recycling. The SEC determined that such omission rendered Keurig’s claim that its pods could be “effectively recycled” incomplete and inaccurate and assessed a $1.5 million civil penalty.
Looking ahead, companies reviewing the adequacy, accuracy and consistency of reporting controls, targets and goals and other ESG-related public disclosures may do well to heed the concerns voiced by Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, earlier this year when he noted that the proliferation of and investor focus on ESG disclosures may have created more incentives to “exaggerate . . . perceived positive ESG activities or products” and “downplay or omit disclosures about negative ESG-related information.”
John F. Savarese, Wayne M. Carlin, David B. Anders, are Partners and Carmen X. W. Lu is a Counsel at Wachtell, Lipton, Rosen & Katz. This post first appeared as a client alert for the firm.
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