March 5, 2021

Enforcement Division Creates Climate & ESG Task Force

That was quick!  Following last week’s SEC announcement that Corp Fin will be scrutinizing climate-related disclosures, yesterday the SEC issued an announcement about creation of an Enforcement Division Task Force focused on climate and ESG.  Acting Deputy Director of Enforcement Kelly Gibson will lead the task force, which will include 22 members. Here’s an excerpt from the SEC’s press release:

Consistent with increasing investor focus and reliance on climate and ESG-related disclosure and investment, the Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct.  The task force will also coordinate the effective use of Division resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations.

The initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.

Besides noting that the task force will work closely with other SEC Divisions and offices, the announcement says the task force will pursue tips and referrals on ESG-related issues and includes a link to the agency’s TCR webpage for submitting tips, referrals and whistleblower complaints.

With the earlier announcement directing Corp Fin to scrutinize climate-related disclosures and now with the creation of an Enforcement Division climate and ESG task force, the SEC’s sending a message that it intends to focus and dedicate resources to review of climate and ESG disclosures. Yesterday’s announcement also follows Wednesday’s announcement of priorities for the Examinations Division for climate risks relating to brokers and investment advisors, as it seems like they’re going to scrutinize ESG investments.  The announcement about Examinations Division priorities includes mention that they’ll review investment advisors and investment company proxy voting policies and procedures and votes to assess whether they align with the strategies.

In an apparent effort to add context to these recent announcements, Commissioners Hester Peirce and Elad Roisman issued a statement saying time will tell what these recent announcements really mean because right now it’s not yet clear. Commissioners Roisman and Peirce note that the Enforcement Division will continue to identify, investigate, and bring actions against those who violate SEC laws and rules but such actions would not be based on any new standard.

In response to these recent announcements, some may want to step-up their efforts around climate-related disclosures. As a resource to help those reviewing and preparing climate-related disclosures, check out the “Internal Controls” memos in our “ESG” Practice Area.

ESG Reporting: Roadmap for Attestation Services

A few weeks ago, I blogged about how investors want to see companies enhance ESG reporting. One enhancement investors want to see is improved data credibility through assurance. Now with the Enforcement Division’s new task force potentially preparing to sift through company ESG disclosures, more companies may be thinking about possible actions to assure themselves and investors of ESG data quality. Recently, the Center for Audit Quality and AICPA issued a memo providing a roadmap for audit practitioners about their role in assisting companies with ESG data assurance efforts, which might offer some help.

Although the report is aimed at audit practitioners, it outlines information to help companies understand what might be involved with a review or examination level attestation from an independent accounting firm. The report includes representative samples from 2 US companies that included an attestation report in their SEC filings. Here’s an excerpt describing several topics to consider prior to engaging a firm to provide ESG attestation services:

Important decision attributes include, but are not limited to, (a) what information will fall within the scope of the attestation engagement (the subject matter); (b) what reporting criteria will the subject matter be measured against (e.g., GRI, SASB, company developed); (c) what level of attestation service will be provided (examination engagement, review engagement); and (d) how will the ESG information and attestation report be disclosed and used?

In determining whether to seek an examination level engagement or a review level engagement, the report suggests where and how the ESG information will be disclosed plays a part in the decision.  Management may determine a review level of engagement is sufficient when the information will be disclosed on a company website rather than disclosed in a SEC filing. The nature of intended users and the significance of the ESG information to them will also affect the level of attestation service for a particular company – when ESG disclosures are being used for investment decision making, the report says an examination level engagement may be more appropriate.

For more about the need for assurance services, last week, the International Federation of Accountants and the International Integrated Reporting Council announced an initiative to help determine how to best deliver integrated report assurance. The organizations plan to roll the initiative out in phases and the first installment announced last week sets out what integrated reporting assurance involves, the difference between limited and reasonable assurance and what is required of auditors and organizations to strive for reasonable integrated reporting assurance.

Transcript: “Audit Committees in Action: The Latest Developments”

We’ve posted the transcript for our recent webcast: “Audit Committees in Action: The Latest Developments” – it covered these topics:

– Evolving Audit Committee Oversight Responsibilities

– Considerations on Financial Reporting in the COVID-19 Environment

– COVID-19 Impact to Oversight of Internal Controls

– CAM Considerations for Audit Committees in Year 2

– Updates to Auditor Independence Requirements

– External Audit Assurance for ESG Data

– Lynn Jokela