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

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.

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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.

Tags: Climate Risk, ESG, SEC

Private equity might make its next investment touchdowns in pro football, as owners of National Football League teams, meeting recently in Phoenix, talked informally about accepting PE and institutional investor money, according to Bloomberg.

While the issue was not on the group’s formal agenda this year, team owners and executives told the news agency they hope to bring up the idea at the 2024 meeting. The owners pushing for the change reportedly would seek to permit minority positions for PE and allocators. The NFL requires that the lead investor for each team have at least a 30% equity piece. Owners cream off 52% of the earnings, with the rest going to the players.

Most likely, asset allocators would not opt for direct ownership of teams. For institutions, if the past is any guide, their preferred play is using PE firm partnerships to get into specialty investments. Among allocators, PE is popular: It ranks as the third largest allocation for public pension funds, at 13%, after stocks and bonds.

Right now, team ownership is concentrated among billionaires, sometimes with 100% control, such as hedge fund magnate David Tepper, sole owner of the Carolina Panthers. But Rob Walton, a member of the mega-rich family of Walmart fame, who controls the Denver Broncos, has other partners, such as Mellody Hobson, co-CEO of Ariel Investments. (The breakdown of the partners’ portions of the Broncos is undisclosed.)

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Team valuations are steadily rising, so owning one looks like a good idea. When Walton acquired the Broncos last year, for $4.65 billion, that represented a premium over the worth Forbes calculated for it in 2021. Amazon founder Jeff Bezos and Josh Harris, co-founder of Apollo Global Management, are among those interested in acquiring the Washington Commanders—whose current Forbes value of $5.6 billion is seven times what current owner Dan Snyder paid for it in 1999. The Washington Post just reported that Bezos is dropping out of the bidding, although he has not confirmed that.

The NFL could be angling to follow basketball’s example: In 2020, the National Basketball Association agreed to allow private equity firms to hold passive ownership stakes. In 2021, Dyal Capital Partners bought a 6% stake in the Atlanta Hawks, and a PE fund focused just on sports, Arctos Sports Partners, took a 5% position in the Golden State Warriors.

If that happens in football, the buyout funds would be tapping into the most lucrative sports venture on earth. The NFL garnered an estimated $10.8 billion in revenue last year, per Sports Brief data, and expects that to rise to $19 billion in 2023, according to Sportico, on the back of lucrative new broadcast agreements. Football’s haul bests that of Major League Baseball, in second place at $10 billion, and the NBA, third at $8 billion.

The 32-team football league rakes in money from broadcast deals, tickets, merchandising and sponsorships.