How the SEC is fighting “greenwashing”

Some companies may have once largely viewed touting their commitment to environmental, social and governance (ESG) goals as a marketing strategy to attract investors and customers. These companies need to be aware that federal regulators – namely those in the Securities and Exchange Commission (SEC) — are now increasingly holding companies to the ESG claims they’ve made.

In recent years, as SEC actions over ESG have increased, some large, powerful entities have paid a high price for misrepresenting their practices. Most of these SEC actions involve the “E” in ESG.  Companies and investment fund managers can’t just throw out words like “sustainability” and “carbon neutral” unless what they say is accurate.

The term “greenwashing” refers to misrepresenting a company or an investment fund as being more environmentally conscious than it is. Specifically, according to the SEC, greenwashing means “exaggerating the extent to which products or services take into account environmental and sustainability factors…. or make unsupported claims about taking environmental or sustainability actions.”

A task force within the SEC is tackling greenwashing

The SEC has even set up a Climate and ESG Task Force. This group is tasked with coming up with “initiatives to proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment.” Its mission is “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 investment advisers’ and funds’ ESG strategies”. The task force is part of the SEC’s Division of Enforcement. That means it can and does take action against parties that fraudulently attest to various ESG commitments.

In the past few years, companies as large and varied as Goldman Sachs, Fiat/Chrysler, BNY Mellon and BP have faced ESG-related enforcement actions, along with lesser-known companies. Many of the targets are in the financial sector because of their investment funds. Many more are in the energy sector. However, even the former CEO of a health insurance distributor was charged with “making false statements to investors.” Some companies have faced SEC actions over false claims about recycling.

Dealing with an SEC investigation is a daunting process. It’s crucial to have sound, experienced legal guidance as early as possible to protect your rights and minimize the damage to your company financially and reputationally if you’re facing an SEC investigation related to ESG or any other subject.