The Securities Exchange Commission has been assuring the public that Environmental, Social and Governance reporting enforcement is coming and that time has arrived. The SEC has decided to start their ESG enforcement efforts with the prosecution of Vale, a Brazilian mining company. The SEC’s full press release is here.
From the press release “The SEC’s complaint 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-recognized standards for dam safety. However, 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.”
The key words are “Vale’s public Sustainability Reports,” which will be used to prove guilt. Too many companies see the annual sustainability report as a marketing or communications opportunity. I don’t think they take it as seriously as they should. My guess is that legal departments are moving in and suggesting that the sustainability reports be written by someone who will tell the truth. This, my friends, is why the ESG profession is growing significantly. The comms, PR and marketing did so poorly at contributing to the annual sustainability report that society called it greenwashing and started to come after them for lying. Ironically one of the first risk areas that new ESG officers should review, are the people producing the annual ESG report.
The SEC has put a stake in the ground. It may take a few SEC ESG related settlements before every company decides to take their ESG efforts seriously, but it’s coming. JDSupra reported, “The SEC, for instance, has enhanced its enforcement capabilities in this area with the formation of a Climate and ESG Task Force in March 2021. The Task Force uses sophisticated data analysis to mine and assess information across registrants, and to identify potential violations including material gaps or misstatements in issuers’ disclosure of climate risks under existing rules and disclosure and compliance issues relating to advisers’ and funds’ ESG strategies.”
If you are struggling to get your organization to take ESG seriously the information in this post could help you make more progress. The key is to get the people who have trouble understanding or telling the truth away from the annual sustainability report development process. Every sentence of the sustainability report should be verified by the ESG Department. They are the domain experts. It’s going to take a while for the enforcement activities to conclude with fines and penalties but ESG fines and penalties there will be. The ESG Officers with the most effective ESG management process will convince leadership before the settlements start coming. The ESG Officers with the least effective ESG management process will be involved the ESG settlements that others will use to convince their leadership to do something. Don’t be that guy.
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