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SEC is Serious About ESG Disclosure Enforcement

In 2021, the SEC announced the formation of a task force in the Division of Enforcement “to proactively identify ESG-related misconduct.” See Climate Change is Rapidly Becoming an SEC Priority, March-April 2021 Update. On April 28, the Commission brought the first action against a reporting company resulting from the work of the Climate and ESG Task Force.


In SEC v. Vale S.A., the Commission alleges that Vale S.A., a large Brazilian iron ore producer, made false and misleading statements about the safety of dams it had built to hold waste from its mining operations. In January 2019, the Brumadinho dam in Brazil collapsed. The Brumadinho collapse was among the worst mining disasters in history. According to the SEC’s complaint, the collapse released nearly 12 million cubic tons of mining waste, or “tailings”, and killed 270 people. Following the tragedy, Vale lost more than $4 billion in market capitalization and became the subject of numerous lawsuits and investigations.


The Commission’s press release announcing its enforcement action states:


“[B]eginning in 2016, Vale manipulated multiple dam safety audits; obtained numerous fraudulent stability certificates; and regularly misled local governments, communities, and investors about the safety of the Brumadinho dam through its environmental, social, and governance (ESG) disclosures. * * * [F]or 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 Vale case illustrates that the SEC is serious about focusing on ESG and is likely to be aggressive in pursuing cases where misleading ESG disclosures were material to investors. Vale has the added dimensions of involving deception of non-investor stakeholders, such as Brazilian dam safety regulators, and of massive loss of human life.


The case is a reminder that materially false statements outside of SEC filings, such as in sustain-ability reports or at ESG webinars, can have the same securities law consequences as those in filed documents. In announcing the Vale action, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said: "Many investors rely on ESG disclosures like those contained in Vale’s annual Sustainability Reports and other public filings to make informed investment decisions. ***By allegedly manipulating those disclosures, Vale compounded the social and environmental harm caused by the Brumadinho dam’s tragic collapse and undermined investors’ ability to evaluate the risks posed by Vale’s securities." Sustainability reports should be prepared and reviewed with the same rigor as SEC filings.

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