After a decade of momentum, the economic-rooted acronym of ESG has officially entered into the regulatory process. On April 28, the SEC’s Climate and ESG Task Force issued its first enforcement action.
ESG is now as a part of our lives as the SEC, IRS and FBI. Wow, it only took a decade to get it socially accepted by the globe in our new media world, and only a year to get industry leaders to not only accept ESG, but promote it too. Not educate, but promote.
ESG stands for Environmental, Social, and Governance (ESG) and is the newest way for a group of appointed leaders to socially engineer the marketplace. There may be other definitions of ESG, but that’s pretty accurate and sterile.
Late last month, the Securities and Exchange Commission (SEC) charged Vale S.A., a publicly traded Brazilian mining company and one of the world’s largest iron ore producers, with making false and misleading claims about the safety of its dams prior to the January 2019 collapse of its Brumadinho Dam.
One of the main reasons is that the collapse killed 270 people, caused immeasurable environmental and social harm, and led to a loss of more than $4 billion in Vale’s market capitalization, according to the complaint.
According to Wikipedia, The Brumadinho dam disaster occurred on 25 January 2019 when Dam I, a tailings dam at the Córrego do Feijão iron ore mine, 5.6 mi east of Brumadinho, Minas Gerais, Brazil, suffered a catastrophic failure. The dam is owned by Vale, the same company that was involved in the 2015 Mariana dam disaster.
The dam released a mudflow that advanced through the mine’s offices, including a cafeteria during lunchtime, along with houses, farms, inns, and roads downstream. 270 people died as a result of the collapse, of whom 259 were officially confirmed dead, in January 2019, and 11 others reported as missing, whose bodies had not been found.
The 76-page complaint alleges that Vale, S.A., a Brazilian mining company, “made false and misleading claims about the safety of its dams.” Significantly, Vale “regularly misled local governments, communities, and investors about the safety of the Brumadinho dam through its environmental, social, and governance (ESG) disclosures.” There was an emphasis added on the ESG portion too.
This is significant. This is real. This is happening.
The SEC’s complaint also alleges that, for years, Vale knew that the Brumadinho dam, which was built to contain potentially toxic byproducts from mining operations, did not meet internationally-recognized standards for dam safety.
Sound familiar? I can think of a couple other industries or projects that have been accused of similar allegations by special interest groups and political grafters.
Rest assured class, Vale’s public Sustainability Reports and other public filings fraudulently assured investors that the company adhered to the “strictest international practices” in evaluating dam safety and that 100 percent of its dams were certified to be in stable condition.
See it’s all good. Vale said their stuff was amazeballs with pie charts and venn diagrams and everything. So what’s the SEC’s problem?
“Many investors rely on ESG disclosures like those contained in Vale’s annual Sustainability Reports and other public filings to make informed investment decisions,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “By allegedly manipulating those disclosures, Vale compounded the social and environmental harm caused by the Brumadinho dam’s tragic collapse and undermined investors’ ability to evaluate the risks posed by Vale’s securities.”
But wait there’s more. Not only do we get an authoritative quote from the SEC, but also the ESG Division within the SEC.
“While allegedly concealing the environmental and economic risks posed by its dam, Vale misled investors and raised more than $1 billion in our debt markets while its securities actively traded on the NYSE,” said Melissa Hodgman, Associate Director of the Commission’s Division of Enforcement. “Today’s filing shows that we will aggressively protect our markets from wrongdoers, no matter where they are in the world.”
No matter where they are in the world. That’s a very important statement and quote for anyone living on Planet Earth.
Will a 100-plus years of Homer Simpson’s Horn Honking USA USA USA bravado-fueled momentum be enough of a spark to ignite this ESG spark? Will the fact the first shot across the “global” marketplace is a “foreign” country’s company.
Out of sight, out of mind. Plus it’s a great American news story to show the world our values are the best.
Another significant action taken in the ESG world is that the complaint was filed in U.S. District Court for the Eastern District of New York. Furthermore, it alleges that Vale violated antifraud and reporting provisions of the federal securities laws and seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.
The SEC’s investigation was conducted by Sharan Custer and Lauren Poper, with the assistance of Carlos Costa-Rodrigues. The investigation was supervised by Mark Cave and overseen by Ms. Hodgman. The litigation will be led by Dean M. Conway and David Nasse under the supervision of Melissa Armstrong.
According to the complaint, “The SEC appreciates the assistance of the Brazilian Federal Prosecution Service, Ministério Público do Estado de Minas Gerais, and Brazil’s Comissão de Valores Mobilários”.
Another significant takeaway from the complaint. There is a significant amount of detail that appears transparent too. Remember transparency can be subjective too.
For those who may have forgotten, the SEC announced in March 2021 the formation of a Climate and ESG Task Force in the Division of Enforcement with a mandate to identify material gaps or misstatements in issuers’ ESG disclosures, like the false and misleading claims made by Vale.
According to the SEC’s website, “the SEC launched the Climate and ESG Task Force within the Division of Enforcement to develop initiatives to proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment.
The Climate and ESG Task Force is coordinating the effective use of Division resources, including through the use of sophisticated data analysis to mine and assess information across registrants, 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.
Now that the task force is testing their criteria and global muscle, how will they determine who is next or worthy of their time to clean up your company’s ESG ways?
My Libra mind just can not get over the visual of the cliché “circling the wagons” being acted out over a barrage of ESG TikTok Tributes, LinkedIn Lobbyists and Selective Shouting dominating social media while being reported (or served up) by professional news networks in order to get an ESG acceptance embedded into our New World culture by the Fourth of July. In my old world media days, we’d simply call it Soundbyte Submission.
Class dismissed til next week.
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ESG University Classroom Column is written by Jason Spiess and no way reflects the mission or position of his other media companies. ESG University is an educational paper with classic newspaper op/ed elements sprinkled in. Because of this, we must categorize the column as Opinion and Editorial and run this disclaimer.
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