Alexander May, Charles Riely, and Gabrielle Sigel are partners at Jenner & Block LLP. This post is based on their Jenner & Block memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); Will Corporations Deliver Value to All Stakeholders? by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy – A Reply to Professor Rock by Leo Strine (discussed on the Forum here); Stakeholder Capitalism in the Time of COVID, by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here).
Since early 2021, the SEC has emphasized that ESG-related issues are important to investors and a key SEC disclosure and enforcement priority. Although the agency’s heightened focus on these issues led to the recent proposal for new climate disclosures, the SEC also has made clear that it would seek to bring cases under existing law and not wait for new rules to be passed.
The reality that the SEC Enforcement Division is on the ESG beat was reinforced late last month, when the Climate and ESG Task Force filed charges against a Brazilian mining company—Vale, SA. Vale describes itself as the world’s largest producer of iron ore, pellets, and nickel. The case stems from an investigation opened after one of the company’s dams collapsed, causing over 200 deaths and dramatic environmental damage. In its complaint, the SEC alleged that Vale made misstatements about its dam’s safety and engaged in deceptive conduct that concealed it had committed misconduct in obtaining required certifications related to dam safety. After the SEC filed action, Vale indicated that it denied the allegations in complaint and intended to defend the action.
The SEC’s approach to the Vale litigation provides a roadmap for public companies to consider how ESG-related disclosures and statements will be scrutinized when the company is impacted by adverse events that are ESG-related. It illustrates that companies should be prepared for the SEC to closely scrutinize statements about risk in ESG disclosures such as sustainability reports or climate impact analyses. This post discusses the SEC’s case against Vale and real-world “lessons learned” for all public companies when publishing materials about ESG, climate, and operational risks.
Statement by Chair Gensler on Proposed Updates to Names Rule
More from: Gary Gensler, U.S. Securities and Exchange Commission
Gary Gensler is Chair of the U.S. Securities and Exchange Commission. This post is based on his recent public statement. The views expressed in this post are those of Chair Gensler, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff.
Today [May 25, 2022], the Commission is considering a proposal to update the Names Rule. I am pleased to support this proposal because, if adopted, it would modernize this key rule for today’s markets and enhance the transparency of the asset management field.
A fund’s name is often one of the most important pieces of information that investors use in selecting a fund. Thus, when first enacting the Investment Company Act of 1940, Congress included provisions about fund naming conventions. These provisions were amended in 1996 to authorize the Commission to define registered investment company names as “materially deceptive or misleading.” [1]
Based on that authority from Congress, the agency adopted the Names Rule in 2001. Under the current Names Rule, if a registered investment company’s name suggests it has a focus in particular investment types, industries, or geographies, or that it has tax-exempt status, the fund must adopt a policy to invest at least 80 percent of the value of its assets consistent with its name.
A lot has happened in our capital markets in the past two decades. As the fund industry has developed, gaps in the current Names Rule may undermine investor protection. In particular, some funds have claimed that the rule does not apply to them—even though their name suggests that investments are selected based on specific criteria or characteristics.
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