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On March 4, 2021, the US Securities and Exchange Commission announced that it would be creating a Climate and ESG Task Force in the Division of Enforcement. The task force will be headed by Acting Deputy Director of Enforcement Kelly L. Gibson and consist of 22 members from across SEC headquarters, regional offices, and Enforcement specialized units.
As the dangers of climate change become more and more apparent, investors are increasingly looking for ways to ensure their portfolios have a positive societal impact. A popular framework, known as ESG, is evaluating a security’s environmental impact, social impact, and corporate governance before deciding to invest. However, in recent years some companies have intentionally or unintentionally misled investors on these factors in order to enhance their perception in the market. This “greenwashing” can have serious consequences that go against the SEC’s mission to ensure companies offering securities tell the truth about their business and the risks involved for that business’s investors.
According to the SEC, this task force will initially focus on “[identifying] any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.” It will also investigate ESG strategies made by investment advisers and funds to ensure they follow “disclosure and compliance” principles, and are not misleading investors. The task force will work closely with other SEC entities including the Divisions of Corporation Finance, Investment Management, and Examination. As further proof that the Division of Enforcement is taking the threat of greenwashing to ESG investment seriously, the task force will also “evaluate and pursue tips, referrals, and whistleblower complaints on ESG-related issues, and provide expertise and insight to teams working on ESG-related matters across the Division.”
The SEC’s strong stance in favor of honest ESG reporting will encourage companies to report their environmental, social and corporate governance data honestly and openly. This benefits both investors, corporations, and the world as a whole by ensuring that the market properly rewards impressive ESG efforts. On March 22, a few weeks after the creation of the Climate and ESG Task Force, SEC Acting Chair Allison Lee stated “…climate and ESG are front and center for the SEC. We understand these issues are key to investors – and therefore key to our core mission.” The SEC’s acknowledgment and support for the trend towards socially conscious investing may even make the market see it as more credible and viable in the long term, accelerating it even further.
Sustainable investing is here to stay. To learn more about how to ensure your investments and have a positive impact on the world, please join us at Physis Investment.