The SEC’s Climate and ESG Task Force has been criticized by Republican commissioners who believe enforcement in the area would be premature. But Kelly L. Gibson, acting deputy director of the enforcement and head of the agency-wide ESG Task Force, stated that the task force is necessary to recognize evolving investor priorities and that it will continue to operate. And new SEC Chairman Gary Gensler has echoed her sentiments, telling Congress that investors “measured in the trillions of dollars” seek to better understand climate risk issues.
Until a new ESG framework is formally introduced, Gibson maintains that long-standing principles of materiality and disclosure will govern. Namely, “the requirements that issuers’ disclosures be accurate and not misleading, and that funds and advisers adhere to their fiduciary duty.” Gibson has explained that – from a compliance perspective – firms should make sure that “when they do speak on climate or ESG issues that the disclosures are not materially false or misleading [or] omitting material information.”
On April 9, 2021, the SEC added color to Gibson’s advice through a risk alert warning advisers and funds “to be consistent” with their discourse of ESG-related issues. The risk alert indicated that SEC staff observed “potentially misleading statements” being made to investors, and that certain firms engaged in ESG investing without addressing their analyses, decision making, and compliance oversight.
The recent, intensified consideration of ESG consideration follows the March 15, 2021 call by Allison Herren Lee, the SEC’s then-acting Chairwoman, for public assistance to develop ESG standards. Most recently, on May 13, 2021, Chairman Gensler announced that rulemaking around climate risk and human capital disclosures would be “an early focus” of his tenure, in light of investor interest in the areas. Chairman Gensler also indicated his support of the ESG task force, indicating its findings may be implemented sooner than later.
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Special thanks to our project assistant, Abigail Rubin for her contributions to the post.