The SEC Took the Fluff Out of ESG False Claims Enforcement

In the realm of white collar crime trends, clients should examine their ESG policies and investor reports.

ESG and the SEC.

ESG – Environmental Social Governance – are sustainability metrics that corporations use to report how they’re sustainable. Investors utilize corporations’ ESG reports when they’re determining where to invest their funds. With the environment at the forefront of social consciousness, corporations compete to excel as environmental partners. Companies that report excellent ESG measurements outshine those companies that do not.

Environmental relates to elements that can be controlled to reduce the impact of corporations on the environment. So, water consumption, how we manage waste and sewers, gas emissions, sustainable use of plants and forests, and additional measures that fall under the umbrella of the term ‘carbon footprint.’ Simple examples are water consumption in companies in California or travel policies (i.e. travel via commercial airlines vs. private jets for a corporations’ C-Suite).

Perhaps the broadest category is social. Social covers all the aspects of human management from consumer safety provisions to privacy policies to data privacy to the myraid issues involved with managing a workforce, as well as a company’s impact on consumers. For example, analyses to determine if the workforce is diverse, if everyone is equally treated, and if the workers are fairly compensated. Are employees paid equally and are their privacy considerations protected? Social covers a world of regulations that were previously foreign to corporate operations. For example, in California, corporations are required to post anti-slavery disclaimers on websites. They have to be real and have meaning, though. Solar panels are very popular for California corporations to purchase. Sometimes the solar panels come from China, but if the company purchases solar panels from China to save electricity, it cannot buy those from a Chinese province that employes forced labor practices.

Governance brings the concepts of Environmental and Social together. A corporation must have a real governance program to maintain and enforce environmental and social standards. Especially now when prosecuting agencies examine if corporations self-report when finding criminal wrongdoing.

Why are ESG considerations important? The SEC investigations and enforcement of ESG violations are resulting in severe consequences for corporations. A company may not falsely report that it complies with environmental standards or sustainability principles. It constitutes criminal behavior if false reports are made to the SEC. The SEC will prosecute this “greenwashing,” which is when a corporation reports that it maintains sustainable practices when it in fact does not. This is not harmless to the SEC. For example, as recently, as November 2022, Goldman Sachs Asset Management LP agreed to pay $4 million in fines for the SEC’s investigation into Goldman’s ESG practices. Goldman was accused of a lack of policies and after it implemented some ESG policies, those were determined to be wildly insufficient.

If a corporation has a clear compliance program that meets industry standards and is managed by competitive paid personnel who are certified to enforce ESG policies, it is much easier to discover potential ESG breaches. Without a strong compliance program, one cannot find wrongdoing within the company.

Next week: what is Honest Services Fraud and why is SCOTUS talking about it?

For questions related to white collar criminal defense matters, please contact Laurel F. Grass at lgrass@leechtishman.com or 212.603.6300. Laurel is Counsel with Leech Tishman and a member of the Litigation & Alternative Dispute Resolution, White Collar & Government Investigations, Corporate, and Data Privacy & Cybersecurity Groups.

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