SEC Launches Enforcement Task Force Focused on Climate and ESG Issues

Does the move mark a significant escalation in the Biden administration’s emphasis on ESG issues, which it emphasized throughout the election? Or something less? 'Time will tell.'

Securities and Exchange Commission in Washington DC.

The U.S. Securities and Exchange Commission announced the creation of an enforcement task force on Thursday to investigate alleged corporate environmental, social and governance misdeeds.

The focus of the new task force’s efforts will be increased policing of investment funds with an ESG focus, making sure that they are providing what they say they are providing in their marketing efforts.

“There has been an explosion of funds marketed as ESG,” Kelly Gibson, the SEC’s acting deputy enforcement director and head of the task force, told The Wall Street Journal. “As a division, we obviously evolve and grow in response to what investors need and the information they are seeking. So this is another extension of that. The only difference is we have dedicated resources to this.”

The move could mark a significant escalation in the Biden administration’s emphasis on so-called ESG issues, which it emphasized throughout the election. The 22-member task force will “develop initiatives to proactively identify ESG-related misconduct,” using data analysis across industries to look for potential violations. They also announced a whistleblower program as part of the rollout.

“Climate risks and sustainability are critical issues for the investing public and our capital markets,” said Acting Chair Allison Herren Lee. “The task force announced today will play an important role in enhancing and coordinating the efforts of the Division of Enforcement, the Office of the Whistleblower, and other parts of the agency to bolster the efforts of the Commission as a whole on these vital matters.”

The question for directors and companies, of course, is where this is all going and where the SEC is headed next under new, yet to be installed, leadership. According to the SEC’s announcement, the initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.

The task force’s work will complement the agency’s other initiatives in this area, according to the SEC, including the recent appointment of Satyam Khanna as a Senior Policy Advisor for Climate and ESG. As an integral component of the agency’s efforts to address these risks to investors, the task force will work closely with other SEC Divisions and Offices, including the Divisions of Corporation Finance, Investment Management, and Examinations, they said.

In response to the announcement, Republican Commissioner Hester Peirce, who has long questioned the ESG movement as overly broad, issued a statement with her fellow GOP Commissioner, Elad Roisman.

“What does this ‘enhanced focus’ on climate-related matters mean?,” she writes. “The short answer is: it’s not yet clear. Do these announcements represent a change from current Commission practices or a continuation of the status quo with a new public relations twist?  Time will tell.”