SEC’s ESG and Climate Task Force Levies First Enforcement Action

Brazilian mining firm Vale SA fined $56 million for fraud that led to fatal 2019 dam collapse.

Brazilian iron mining firm Vale SA settled with the Securities and Exchange Commission for $55.9 million on March 28, more than four years after one of its dams collapsed in Brazil in January 2019, resulting in the deaths of 270 people. The SEC charged that Vale had lied to investors about the safety of its dams in its environmental, social and governance disclosures and other filings.

Mining companies such as Vale sometimes maintain dams near their mining operations as a way to segregate contaminated water containing “tailings,” or mine waste, from nearby bodies of water. When the Brumadinho mine collapsed, the waste water contaminated the nearby river and buried 270 people.

According to an SEC complaint brought in April 2022, Vale lied repeatedly to investors and Brazilian authorities about the integrity of their dams. This included concealing material information from auditors, bribing auditors, disregarding industry best practices, presenting low quality lab data on their dams and making false statements to investors. It also alleged that Vale’s pattern of misleading investors also included private webinars on their ESG practices.

In the wake of the collapse, Vale lost $4 billion in market value, and its credit rating was downgraded to junk status.

Neel Maitra, a partner at the Wilson Sonini Goodrich and Rosati law firm, says that the settlement amount might seem like a small amount if it had been a personal injury lawsuit, but this settlement was for misleading investors, not for the damage caused by the collapse. This is only one subset of claims related to the catastrophe. Vale was also required to pay $7 billion in compensation to the victims by the Brazilian state of Minas Gerais.

This settlement was the first enforcement action brought by the SEC’s ESG and Climate Task Force, a 22-member team in the SEC’s enforcement division. The task force is focused on disclosures related to climate risk and ESG policies. In this case, Vale had misrepresented the integrity of its dams in ESG-related disclosures, according to the SEC.

Maitra explains that the settlement is part of SEC’s increasing focus on ESG filings. He highlighted an SEC proposal from May 2022, which would require ESG funds and their advisers to standardize their related disclosures and to disclose to investors information related to achieving specific ESG related goals.

A separate SEC proposal from March 2022 which would require companies registered with the SEC to disclose material climate risks and greenhouse gas emissions, has come under increased scrutiny from Republicans in Congress who claim that reporting greenhouse gas emissions is immaterial for many issuers and investors.

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