There has been lots of discussion and policy documents about Environment Social & Governance (ESG) disclosures made by public companies. While the U.S. Securities & Exchange Commission (SEC) has discussed the importance of accurate representations of ESG information to potential investors, one wondered how vigilant the SEC would enforce such requirements. On April 28, 2022, the SEC’s Climate and ESG Task Force brought its first action in the U.S. District Court for the Eastern District of New York against Vale S.A. (“Vale”), a large mining company, alleging violations of federal securities laws arising out of false and misleading statements in connection with the safety and stability of dams built to hold toxic waste produced in mining operations.

In January 2019, Vale’s Brumadinho Dam in Brazil collapsed and released millions of cubic tons of toxic waste, directly killing 270 people and contaminating a nearby river. Vale suffered significantly financially as a result. The SEC alleges that Vale knew that the dam did not meet internationally recognized dam safety standards, yet stated in its ESG disclosures that it adhered to the “strictest international practices” of dam safety and that 100% of its dams were certified to be in stable condition. Vale denies the charges and is challenging the action.

Vale manipulated dam safety audits, obtained fraudulent stability certificates, and regularly misled local governments, communities, and investors about the safety of the dam in its ESG disclosures, including sustainability reports. They found the ESG disclosures to be false and misleading by downplaying risks of disastrous financial consequences should any of its high-risk dams collapse.

This shows that the SEC is reading sustainability reports, as well as other ESG disclosures and is willing to use statements in such documents as bases for enforcement actions alleging misrepresentation. Companies should take note and review its own procedures to ensure accuracy and ability to defend and verify when preparing submissions, such as ESG-required disclosures.

Please note that this article, containing legal information, was prepared by a non-attorney. Therefore, before making any decisions on these matters retain and utilize experienced legal counsel in this area. CCES has the technical experts to help your environmental program. Contact us today at 914-584-6720 or at karell@ccesworld.com.