Whistleblowers Key in SEC’s Enforcement of Climate Risk Disclosures

SEC Climate Whistleblowers

In March, the U.S. Securities and Exchange Commission (SEC) announced it was requesting public input on the agency’s handling of climate change disclosures. In response, a number of advocacy groups submitted comments urging the SEC to update its climate risk disclosure requirements and to center the agency’s whistleblower program in its enforcement efforts.

In the request for public input, then-Acting Chair of the SEC Allison Lee noted that, with the recent demand among inventors for disclosures about climate change risks, “questions arise about whether climate change disclosures adequately inform investors about known material risks, uncertainties, impacts, and opportunities, and whether greater consistency could be achieved.”

The request comes as part of a broader shift by the SEC towards a focus on environmental, social, and governance (ESG) issues. In March, the SEC listed climate-related risks as one of its 2021 examinations policies and announced the creation of a Climate and ESG Task Force in the Division of Enforcement.

In response to the request for public comment, the National Whistleblower Center (NWC), the Duke University Climate Risk Disclosure Lab, Americans for Financial Reform Education Fund/Public Citizen all filed comments with the SEC arguing for stronger whistleblower protections as a critical aspect of a successful ESG reporting rule.

“We commend the SEC for the increased interest and initiative the agency has taken around sustainability-related financial disclosures, and are grateful for the opportunity to comment,” NWC’s letter reads. “Moreover, we know that employees who work for public companies have raised concerns over these issues, and it is imperative that SEC substantive rules provide the regulatory framework that will permit these employees to meaningfully raise issues that will result in successful enforcement actions.”

In their letter, NWC explains that whistleblowers are key in exposing inconsistencies in companies’ public disclosures about climate risks. However, according to NWC, whistleblowers are hesitant to come forward due to the lack of “strong and effective substantive rules prohibiting misleading corporate statements concerning climate and environmental commitments.” Without strong rules clearly outlining violations, NWC argues, whistleblowers cannot be expected to risk their careers to expose potential violations.

“Why would a whistleblower risk his or her career to report misleading statements without also knowing that such misleading statement, if proven, would constitute a violation of a law, rule, or regulation covered under the Dodd-Frank Act whistleblower Law?” the letter states. “For this reason, NWC requests that the Commission act expeditiously to propose, adopt, implement, and enforce detailed disclosure requirements for all issuers. Furthermore, we request that in adopting such rules the SEC makes clear that the Commission will also ensure that whistleblowers are properly incentivized to report these violations.”

In addition to the letters filed by the advocacy groups, recent articles by leading whistleblower attorneys at the qui tam firm Kohn, Kohn & Colapinto have outlined the key role whistleblowers would play in properly enforcing ESG disclosure requirements. In an article for JD Supra, attorneys Stephen M. Kohn and Mary Jane Wilmoth explain the key concepts the SEC should follow in order to utilize its whistleblower program to combat climate change. Kohn and Wilmoth put forth the following concepts: “encourage direct reporting to the SEC, use the whistleblower program to enforce climate-related risks, exercise discretion to implement the whistleblower program to have the maximum Impact on climate-related crimes/violations, prioritize FCPA cases that impact climate, and fully implement the ‘related action’ rule.”

In an article for The National Law Review entitled “Mandatory ESG Disclosures Open Door for Whistleblowers Who Aim to Help Public Good,” legal intern Grace Schepis echoes the arguments put forth in NWC’s letter to the SEC. “Under clear mandatory reporting guidelines, violations would be more apparent and reportable,” she writes. “This clarity would then enable those ready to blow the whistle to file actionable Tips to the SEC, mobilizing whistleblowers to effectively assist SEC enforcement operations, saving the agency resources and reaping major benefits for investors and the American public – as the SEC whistleblower program has already done in so many other areas of corporate compliance.”

Individuals with information about climate-related violations can learn more about climate change whistleblowing at NWC’s Climate Campaign website and make whistleblower reports using the Climate Disclosure Form.


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