What might a SEC Enforcement action over climate disclosure look like?

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Hats off to Cooley’s Cydney Posner for this blog about a Law 360 article noting that the SEC’s Acting Director of Enforcement Melissa Hodgman, warned in on a panel last week that, in addition to “increased scrutiny” of “funds touting green investments,” we may well see more ESG disclosure-related enforcement actions in general. When asked by the moderator to describe the types of cases we should expect to see, Hodgman responded with a pretty good head’s up: “the public can expect to see more cases like September’s Fiat Chrysler case.”

Cydney writes that according to Hodgman, we should “expect to see ‘other cases like that, where there was a misstatement or something that wasn’t disclosed to investors that they needed to know to make [an] investment decision.’” In addition, she observed “that ‘like many of the other areas, I don’t think this is a different approach to enforcement or applying anything in a different way,’ adding that ‘our securities laws were written to evolve and [meet] the new products and the new environments in which we find ourselves.’”

Here’s an excerpt from Cydney’s blog about the Fiat Chrysler case that the SEC brought last year:

In that case, the SEC charged that Fiat Chrysler Automobiles N.V., a London-based public company that sells vehicles through its Michigan-based subsidiary, made misleading disclosures about an internal audit of its emissions control systems. According to the SEC Order, following the VW “Dieselgate” scandal, FCA initiated an internal review of its own emissions control systems to verify that its vehicles did not contain similar “defeat devices.” In February 2016, the Order charged, “FCA issued a press release and an annual report, which both stated that the internal audit confirmed FCA’s vehicles complied with environmental regulations concerning emissions.”

But the SEC contended that those statements were ultimately misleading: “Although the statements focused on the internal audit’s determination that FCA vehicles did not have a mechanism to detect that they were being tested in laboratory conditions, the statements were misleading because they did not sufficiently disclose that the internal audit had a limited scope focused only on finding cycle-beating defeat devices like the ones used by VW, and was not a comprehensive review of compliance with emissions regulations. In addition, at the time FCA made these statements, EPA and the California Air Resource Board…engineers had raised concerns to FCA about the emissions systems of FCA’s ‘EcoDiesel’ engines.”