Bloomberg Law
Aug. 10, 2022, 9:00 AM

Recent SEC Enforcement Hints at Looming Crackdown on ESG Claims

Andrew Ramonas
Andrew Ramonas
Corporate Disclosure Reporter

A new SEC task force to police corporate environmental, social and governance disclosures is gradually ramping up enforcement, putting companies on notice.

The Securities and Exchange Commission created its Climate and ESG Task Force a year and a half ago. The unit has mostly kept working behind the scenes. But in the last four months, it has helped bring at least three enforcement actions, according to agency records.

Companies that have faced allegations of misleading ESG claims include Bank of New York Mellon Corp., health insurance distributor Benefytt Technologies Inc., and Brazilian mining company Vale S.A.

The SEC is working on new rules to combat bogus ESG claims by investment funds and to force companies to disclose how climate change affects their operations. New rules or not, SEC Chair Gary Gensler is facing pressure from Democrats and investor advocates to guard against misleading corporate disclosures about climate change and other ESG issues.

The task force’s actions, which started to become public this spring, are likely just the beginning, with more cases expected soon, corporate lawyers told Bloomberg Law. SEC investigations often take more than a year to complete, they said.

The SEC’s fiscal year-end in September traditionally brings a flurry of cases, said Kevin Muhlendorf, a Wiley Rein LLP partner and former agency lawyer, who advises companies on ESG matters.

“I don’t think it’s all bark and no bite,” Muhlendorf said of the task force. “Anytime you create one of these task forces, there’s going to be actions.”

More enforcement actions also may come with help from the SEC’s Divisions of Corporation Finance and Examinations. The units are busy reviewing company disclosures and investment firms with an eye on what’s said about ESG, said Amy Greer, a former SEC lawyer and co-chair of Baker & McKenzie LLP’s North American financial regulation and enforcement practice. The staff in the units can send information about potential wrongdoing to the SEC’s Enforcement Division, which must use existing rules to bring ESG cases since the new regulations are still not in place.

“The fact that things are not out there for public consumption in a meaningful way does not mean that the regulated community does not have the message because it does,” she said.

An SEC spokeswoman declined to comment.

‘Stepping Up’

Goldman Sachs Group Inc. may be the task force’s next announced case.

The SEC is investigating claims the banking giant’s funds didn’t align with ESG metrics touted in marketing material, Bloomberg News reported in June.

The report came after the agency announced in May that BNY Mellon agreed to pay $1.5 million to settle claims of ESG misstatements concerning its funds, without admitting or denying any wrongdoing.

Former Acting SEC Chair Allison Lee launched the task force with 22 members in March 2021, as newly empowered Democrats and investor advocates pushed to put ESG at the top of the agency’s agenda. The SEC soon after told fund managers it saw problems with how they handled ESG issues.

The task force was directed to find public companies that dupe investors about their environmental risks or engage in other ESG-related misconduct.

The agency credited the task force for assistance in bringing lawsuits against Benefytt and Vale.

“I’m pleased to see the talented staff in the ESG Task Force stepping up its efforts to help the Enforcement Division combat fraud in this growing space,” said Lee, who left the SEC in July.

Quantity v. Quality

Some corporate lawyers told Bloomberg Law they question whether the task force is fully living up to its expectations.

A July SEC order settling the Benefytt case didn’t mention ESG. The only reference to ESG came in a press release that said the task force assisted with the matter.

Benefytt and its former CEO, Gavin Southwell, hid tens of thousands of consumer complaints from investors when it was a public company known as Health Insurance Innovations Inc., the SEC said.

Southwell and Benefytt agreed to pay more than $12 million to resolve the matter, without admitting or denying any wrongdoing.

Greer, who represented Benefytt, said the task force’s involvement with her client’s case was a “head-scratcher.” She said she hopes the SEC focuses more on cases that have what she sees as stronger links to the space.

“Don’t go for quantity over quality in an area that’s this important to you,” Greer said.

The SEC was more explicit about ESG-related allegations in its complaint against Vale filed in April.

The iron ore producer deceived investors about the safety of its dams before one collapsed in 2019, the SEC said in the complaint. The collapse killed 270 people and caused “immeasurable environmental and social harm,” according to the complaint. Company sustainability reports and ESG webinars claimed safety auditors hadn’t found any problems with its dams, the SEC said.

Vale has disputed the allegations. The case is pending in the U.S. District Court for the Eastern District of New York.

Few Tools

The SEC has few tools designed to bring ESG cases. No rules specifically ban misleading or incomplete ESG disclosures.

The agency invoked broad antifraud laws to help bring cases against Benefytt, Vale, and BNY Mellon. The SEC also has climate disclosure guidance at its disposal. The 2010 guidance reminds companies to make disclosures about climate change, if material to their businesses.

But the SEC’s proposed ESG rules may give the agency more ammunition. Some rules, which could be finalized in the fall, would require companies to report their greenhouse gas emissions and make other climate disclosures. Other rules also in development would require ESG-focused funds to have at least 80% of their assets aligned with that strategy.

“What the rulemaking will help with is putting all those disclosures in a consistent, comparable format that would allow us to more easily further our investigations,” SEC Enforcement Division Director Gurbir Grewal told lawmakers in July.

Shoehorning Cases

Sanjay Wadhwa, the task force head, has long been known as an extremely aggressive SEC lawyer, said David Kornblau, a Dentons partner and former SEC lawyer.

Wadhwa, who also is the SEC Enforcement Division’s deputy director, has racked up a lengthy list of victories in cases over insider trading and other corporate wrongdoing since he joined the agency in 2003.

The SEC lawyer has a “tenacious approach” to enforcement, Grewal said when Wadhwa was promoted to deputy director last year.

Wadhwa now is tasked with rooting out wrongdoing in a space without tailored rules and a clear target. The SEC’s 2021 risk alert to fund managers said it defined ESG “in the broadest sense to encompass terms such as ‘socially responsible investing,’ ‘sustainable,’ ‘green,’ ‘ethical,’ ‘impact,’ or ‘good governance.’”

“They will be on the lookout for cases that can be shoehorned into an ESG theme,” Kornblau said.

To contact the reporter on this story: Andrew Ramonas in Washington at

To contact the editor responsible for this story: Roger Yu at, Melissa B. Robinson at