SEC creates task force for climate, ESG violations

The Securities and Exchange Commission (SEC) announced Thursday it will form a task force to weed out misconduct involving environment, social and governance (ESG) regulations and investment products.

The SEC’s new Climate and ESG Task Force — part of the agency’s enforcement division — will focus on making sure publicly traded companies, investment advisers and funds comply with ESG-related disclosure rules.

“Climate risks and sustainability are critical issues for the investing public and our capital markets,” said acting Chairwoman Allison Herren Lee, a Democratic commissioner appointed by President Biden to temporarily lead the agency until his nominee for chairman, Gary Gensler, is confirmed.

The ESG task force is the SEC’s latest step toward ramping up its enforcement of climate-related rules and oversight of the investment industry’s response to several rising trends.

Investment funds and products focused on companies with strong ESG track records have proliferated as a growing number of investors prioritize their portfolio’s impact on climate change, racial equity and other prominent issues. 

Democratic lawmakers, environmentalists and advocates for tougher financial rules have also called on the SEC to boost scrutiny of climate disclosure compliance after years of neglect under chairmen from both parties.

“Proactively addressing emerging disclosure gaps that threaten investors and the market has always been core to the SEC’s mission,” said acting Deputy Director of Enforcement Kelly L. Gibson, the task force’s leader.

“This task force brings together a broad array of experience and expertise, which will allow us to better police the market, pursue misconduct, and protect investors,” Gibson added. 

The SEC also hired last month Satyam Khanna, a former commission and Treasury Department staffer, as the agency’s first senior policy adviser for climate and ESG.

While the SEC’s new focus has pleased Democrats and supporters of tougher oversight, the agency’s two Republican commissioners downplayed the creation of the task force and other recent moves to emphasize climate-related issues.

“Do these announcements represent a change from current Commission practices or a continuation of the status quo with a new public relations twist? Time will tell,” said commissioners Elad Roisman and Hester Peirce in a Thursday statement.

“Maybe the Enforcement Division is merely continuing ongoing efforts with a little extra fanfare,” they wrote.

Updated at 6:59 p.m.