The SEC’s Enforcement Division just created a “Climate & ESG Task Force.” What does that mean?

Three things to know about the SEC Enforcement Division’s announcement that it has created a “Climate & ESG Task Force”:

1. Not just limited to the Task Force’s 22 members – The announcement notes that this new Task Force will be led by Enforcement’s Deputy Director and will have 22 members – but that the Task Force will oversee a Division-wide effort. This is significant. The Task Force will facilitate the work of the 1300+ other Enforcement Staff members that might pursue ESG-related actions.

2. Task Force will “proactively” go after ESG misconduct – Here is a phrase from the press release to note: “the Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct.” What does that mean?

Well, it’s not good news for those funds out there that have been sticking an “ESG” label on their fund because it’s the flavor of the year. Just two days ago, the SEC’s Division of Examinations announced that it would make it a priority to kick the tires if a fund claimed it was ESG-oriented, but it really isn’t (actually the SEC’s announcement wasn’t too clear about that but follow-up media articles made the point). This “fudged label” issue is a HUGE problem and should be easy pickings for Enforcement.

3. Not likely that public company disclosures targeted (initially) – So long as companies are following the SEC’s 2010 guidance, they shouldn’t have anything to fear about from this new Task Force. As I blogged last week, the SEC does intend to update that 2010 guidance – and once that happens, I imagine more ESG disclosures will be mandated and your Enforcement risk will rise.

On the other hand, this step could chill voluntary disclosures. Of course, it will be hard to gauge that except for anecdotal evidence…

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By the way, the two Republican Commissioners issued a statement indicating they’re unsure of the meaning of the flurry of ESG-related statements from the SEC over the past two weeks. That it perhaps is better to await the findings of Corp Fin’s disclosure review and the Examination staff’s findings before going to the trouble of all this fanfare.

I disagree. One way that the SEC deters misconduct is by making some noise – and given the urgency of climate change, there can’t be enough noise coming out of the SEC. Time is short…