The SEC alleges that the Brumadinho dam collapse caused significant environmental and social harm. The collapse released nearly 12 million cubic tons of mining waste into the Paraopeba River, resulted in the deaths of 270 people, and had downstream damaging effects on the local community and economy. The SEC asserts that Vale’s disclosures caused “immeasurable human suffering.”
The complaint also alleges that Vale’s disclosures — specifically those originating in its annual sustainability reports — caused significant harm to investors. The SEC alleges that Vale’s concealment of the true condition of the dam, as well as related dams, caused Vale’s annual sustainability reports and other public filings to be materially false and misleading. Prior to the collapse, Vale assured investors that its dams had been audited to address the risk of liquefaction, that it had not identified any structural issues, and that it had received independent stability declarations. The SEC claims that those disclosures were false and misleading.
This is the first ESG-related action brought by the SEC since the Division of Enforcement established its Climate and ESG Task Force in March 2021. While the SEC frames the complaint as an ESG disclosure case, the disclosure framework under which the enforcement action was brought is not new. The SEC has brought a number of enforcement actions over the past decade against public companies for ESG-like claims, including those related to environmental disasters (link) and compliance with regulatory environmental emissions standards (link and link). While the complaint against Vale appears to be the first action based in part on disclosures made in publicly-available facility sustainability reports, the complaint appears to be no different from actions brought in response to prior high-profile, pre-ESG instances of companies making false or misleading disclosures about the safety of their products or facilities.
This enforcement action signals the types of cases the SEC may bring under the current disclosure framework. Specifically, although apparently not investigated by the Climate and ESG Task Force, the SEC may evaluate a company’s ESG disclosures for misrepresentations or omissions after a product or facility has become demonstrably unsafe and caused environmental and social harm. Public companies should continue to ensure the accuracy of disclosures and include appropriate disclaimers and risk factors associated with product or facility safety. Public companies should also work to confirm that representations, including those related to environmental and other ESG-related issues, are supported by sufficient documentation.
Representing that a product or facility is safe when there is evidence demonstrating otherwise, or failing to disclose a known safety issue, has always been a disclosure concern for the SEC, and the SEC’s current focus on ESG will likely lead to even more ESG-related enforcement actions like the Vale complaint.
