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April 29, 2022

SEC Begins to Set Parameters With New ESG Disclosures Case


The US Securities and Exchange Commission (SEC) filed a notable securities fraud lawsuit on April 28 against Brazilian mining company, Vale S.A., based in large part on Vale’s alleged false and misleading environmental, social, and governance (ESG) disclosures. While the facts of this case may not fit neatly into a typical ESG case (i.e., the environmental impact happened after the structural failure), and the actions by Vale and its executives may not otherwise be unique from conventional fraud cases, this is the first action emphasizing false and misleading ESG disclosures since the Division of Enforcement formed its Climate and ESG Task Force in March 2021. Under the leadership of Deputy Director of Enforcement Sanjay Wadhwa the Task Force is mandated with identifying material gaps or misstatements in ESG disclosures, and this case demonstrates the wide parameters by which Enforcement is operating through the ESG Task Force.

It is still too early to tell if the SEC’s action against Vale is a watershed moment for ESG disclosure enforcement more broadly, but the comments from Associate Director of Enforcement Melissa Hodgman warn of active policing of both domestic and international companies who avail themselves of US markets: “While allegedly concealing the environmental and economic risks posed but its dam, Vale mislead investors and raised more than $1 billion in our debt markets while its securities actively traded on the NYSE. Today’s filing shows that we will aggressively protect our markets from wrongdoers, no matter where they are in the world.”

This Advisory sets forth the highlights of the case against Vale, describes the ways that Vale allegedly made false or misleading ESG disclosures to investors, and describes key takeaways.

The Case Against Vale

In its Complaint against Vale, the SEC alleges that Vale made false and misleading ESG disclosures to investors from 2016 through 2018 regarding the safety and risks associated with the company’s Brumadinho dam prior to the dam’s catastrophic collapse in January 2019. Specifically, the SEC claims Vale concealed the true condition of the dam, thus causing Vale’s sustainability reports and other ESG disclosures to be materially false and misleading. The SEC alleges that Vale and its executives knew or were reckless in not knowing that the Brumadinho dam did not meet safety guidelines, some of the allegations include that Vale: (i) obtained stability declarations for the dam by using unreliable and flawed laboratory data, (ii) concealed material facts from Vale’s auditor, (iii) removed auditors and firms who threatened Vale’s ability to obtain stability declarations, (iv) disregarded best practices and minimum safety standards, and (v) signed false certifications related to Vale’s public statements to investors.

The SEC’s Complaint also identifies a number of ways that Vale allegedly made material false or misleading ESG disclosures to investors:

  • Investor Presentation & SEC Filings. In a 2016 investor presentation, Vale is alleged to have falsely proclaimed the safety of its dams: “The actions related to dam safety are taken beyond the legislation requirements,” and “[a]ll Vale’s dams in the Iron Ore Business are safe.” Vale allegedly made similar false and misleading statements to investors in at least two SEC filings.
  • Sustainability Reports. In two Sustainability Reports made available to investors on its website and referenced in SEC filings, Vale allegedly misled investors when “discussing its ‘environmental responsibility’ and its management of dam safety,” including, among other statements, that “[a]ll the structures in the Ferrous area are completely normal and stability certified by the audit completed in September 2017.”
  • President and CEO Public Comments. The SEC alleges Vale’s President and CEO “perpetuated Vale’s false and misleading narrative when he falsely told investors at a meeting in Sao Paulo that Vale’s dams are in a state of ‘impressive’ quality,” and was quoted in 2018 saying “today[,] the dams are impeccable.”
  • ESG Webinar. In a 2018 ESG webinar published on its website, Vale allegedly made a number of misleading and false statements, including that “[a]ll of Vale’s iron ore dams are safe and operating within normal limits,” and “100% of Vale’s iron dams have their Stability Dam Declaration issued by the External Auditors.”

According to Enforcement Director Gurbir Grewal, “[m]any investors rely on ESG disclosures like those contained in Vale’s annual Sustainability Reports and other public filings to make informed investment decisions . . . [and] [b]y allegedly manipulating those disclosures, Vale compounded the social and environmental harm caused by the Brumadinho dam’s tragic collapse and undermined investors’ ability to evaluate the risks posed by Vale’s securities.”

Key Takeaways

As our previous series of Advisories concerning ESG considerations for companies and financial services institutions have foreshadowed (see Parts IIIIII, IV, and V), the action against Vale is the culmination of the SEC’s more than year-long focus under the Biden-Harris Administration on the sufficiency and accuracy of climate and other ESG disclosures that began in earnest with the creation of the ESG Task Force. Given the SEC has filed only one ESG-based complaint in the year since the task force has been formed, it will be under pressure between now and the end of the fiscal year in September to demonstrate that its task force has been successful; which could mean pressure to conclude and file ESG-related cases currently under investigation as well as begin new investigations related to ESG disclosures.

In light of this, companies and financial services institutions may want to consider the following best practices:

  • Registrants, both domestic and foreign, should pay close attention to any mention of environmental, social, or governance issues in their written documents and verbal statements. This includes disclosures in traditional investor-facing documents like annual reports and proxy statements, but also in press releases, sustainability reports, earnings calls, and media interviews.
  • Make sure that ESG disclosures are not only accurate, but that statements are not contradictory across documents (e.g., disclosures in a company’s SEC filing should not contradict statements in a corporate sustainability report).
  • Consider publications such as the FTC Green Guides as a good starting point to consider how to communicate environmental claims, as our partner Brian Israel recently discussed.
  • Ensure that controls and policies and procedures are reasonably designed and sufficiently robust to capture inaccurate disclosures of any kind, including ESG-related disclosures.


Arnold & Porter continues to monitor the rapidly evolving climate-related and other ESG developments and recommend best practices for our clients. If you are seeking advice on how to reduce ESG enforcement-related risk, or how to incorporate ESG factors into your risk management or disclosures processes, please contact any author of this Advisory or your regular Arnold & Porter contact.

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.