It has become increasingly common for corporations, financial institutions and investment firms to prominently promote their commitment to environmental, social and governance (ESG) goals. The “E” in ESG is typically seen as the most important one. It’s also the easiest to measure.
That’s important to regulators and investors alike. That’s because a commitment to ESG, which is often accompanied by talk of sustainability is more than a marketing strategy. When companies make claims related to this that are untrue (also known as “greenwashing,” they can (and have been) the subject of legal action and substantial fines by the Securities and Exchange Commission (SEC).
How the SEC defines greenwashing
The SEC defines greenwashing as “the act of exaggerating the extent to which products or services take into account environmental and sustainability factors.” Those who manage investment funds can be accused of greenwashing to bring in investors who want to put their money in environmentally conscious, forward-thinking companies.
As the SEC notes, however, “Other entities or industry professionals may also engage in greenwashing. For example, companies may exaggerate or overstate the environmental and sustainability aspects of their products or services or make unsupported claims about taking environmental or sustainability actions.”
The Climate and ESG Task Force
The SEC’s actions against corporations for greenwashing have stepped up considerably over the past couple of years. It now has a Climate and ESG Task Force to “develop initiatives to proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment.”
Over the past few years, its enforcement actions against companies and officials and employees within those companies included wrongdoing such as misleading investors and making false statements to investors. The terms, “sham,” “fraud” and “scheme” appear multiple times in a list of these actions.
Of course, it’s preferable to avoid an SEC greenwashing investigation than to worry about having to deal with one. Whether you’re looking for guidance to help avoid regulatory scrutiny or you’re already facing an investigation, it’s crucial to have sound, experienced legal guidance.