SEC Disbands its Climate and ESG Enforcement Task Force

The Securities and Exchange Commission (SEC) has reportedly recently dissolved its Climate and ESG Enforcement Task Force (the Task Force). The Task Force was part of SEC Chair Gary Gensler’s broader push to increase investors’ access to environmental, social, and governance (“ESG”) information about public companies and registered investment companies. The dissolution of the Climate and ESG Enforcement Task Force comes after three years marked by industry resistance and a mixed record in the courts. Prior to the Task Force’s dissolution, the agency removed ESG from its annual Examination Priorities Report, which provides areas of particular focus during SEC examinations. While the Task Force has been dissolved, the SEC is still pursuing a number of its proposed ESG and climate-related rules.

The Climate and ESG Enforcement Task Force was created in March 2021 with the goal of “develop[ing] initiatives to proactively identify ESG-related misconduct.” The Task Force was created when Allison Herren Lee was Acting Chair, and became part of Chairman Gary Gensler’s prioritization of climate and ESG issues, and initially included more than two dozen SEC staffers. The Task Force focused on identifying material misstatements or omissions under existing SEC rules, and brought actions against a variety of market participants for misleading public statements or failures to adopt, or enforce, their stated ESG policies and procedures. Although the Task Force had some notable successes, its dissolution comes amidst a larger set of challenges for the agency’s ESG initiatives.

Under Chair Gensler’s direction, the SEC has worked to pursue a number of climate and ESG efforts including the following rules:

• Enhancement and Standardization of Climate-Related Disclosures for Investors (currently challenged and voluntarily stayed by the SEC);
• Corporate Board Diversity;
• Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices; and
• Investment Company Names.

Many of these rules have been subject to extensive industry criticism, delays in the rulemaking procedure, or challenges in court. These challenges are occurring concurrently with a broader set of challenges posed to the SEC’s rulemaking authority by recent Supreme Court decisions limiting the deference given by courts to agency interpretations of federal statutes and expanding the ability of private litigants to challenge existing regulations. Additionally, the Supreme Court’s recent Jarkesy decision has imposed further enforcement challenges by limiting the SEC’s ability to use its in-house administrative law judges.

While the SEC’s climate and ESG efforts have faced a number of challenges and the SEC has already toned down its full-throated support of climate and ESG issues, the SEC adopted the Investment Company Names rule, and the Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices rule remains on the SEC’s rulemaking agenda.  

Takeaways

• The SEC has dissolved its Climate and ESG Task Force approximately three years after its inception.
• The Task Force’s dissolution comes as the SEC’s climate and ESG agenda faces heavy scrutiny from industry participants and activists.
• Despite the Task Force’s dissolution, public companies should continue to monitor their climate and ESG related disclosures, as a material misstatement about an ESG issue exposes companies to the same risks as any other material misstatement.

Crowell & Moring continues to monitor the SEC’s rulemaking and enforcement agendas and will provide updates on developments as appropriate.