Update: On March 28, 2023, the SEC announced that Vale S.A. agreed to pay $55.9 million to settle the charges brought for making allegedly false and misleading statements about the safety of its dams. In the press release, Mark Cave, Associate Director of the SEC's Division of Enforcement, stated that the SEC's action against Vale "illustrates the interplay between the company's sustainability reports and its obligations under the federal securities laws" and that the fine demonstrates that "public companies can and should be held accountable for material misrepresentations in their ESG-related disclosures."

On April 28, 2022, the SEC announced it charged Vale S.A., a Brazilian mining company, with making false and misleading statements about the safety of its dams in the years leading up to the 2019 collapse of its Brumadinho dam. The SEC alleges that Vale misled investors about the safety of its dams by making false and misleading statements through its ESG disclosures in public filings, sustainability reports, and other public statements.

Vale is a Brazilian mining company and one of the world's largest iron ore producers. In January 2019, Vale's Brumadinho dam suffered a catastrophic failure, releasing almost 12 million tons of mining waste onto the mine's offices and a local community before reaching the Paraopeba River, nearly five miles from the dam. The collapse killed 270 people and caused significant environmental damage. The Brumadinho dam collapse also occurred just over three years after the failure of another of Vale's dams near Mariana, Brazil, which resulted in one of the worst environmental disasters in Brazil's history. It was determined that the collapse of both dams was caused by a geophysical phenomenon known as liquefaction.

Vale's American Depositary Shares (ADSs) and several series of its notes have been registered with the SEC under the Exchange Act and trade on the NYSE. In particular, Vale issued $1 billion of 6.25% notes due 2026 in February 2017 and more than 170 million ADSs in August 2017, at a time where Vale was making false statements about the conditions of the Brumadinho dam and the company's commitment to safety. Following the collapse of the Brumadinho dam, the price of Vale's ADSs plummeted nearly 25% and the company lost almost $4.4 billion in market capitalization. Vale's corporate credit rating was also downgraded to junk status and the board of directors suspended all dividend payments.

According to the SEC's complaint, in the years following the Mariana dam disaster and leading up to the Brumadinho dam collapse, Vale was aware of critical safety issues with the Brumadinho dam, including a high risk of failure due to liquefaction. Specific allegations include that Vale:

Despite the alleged knowledge of the Brumadinho dam's critical safety issues, Vale made a number of statements in its SEC filings, sustainability reports, and other public disclosures to assure investors that its dams were safe and had been audited to address the risks of liquefaction, including, among others:

By omitting that Vale knew the Brumadinho dam did not actually meet minimum international safety standards and that Vale had obtained the stability declarations from external auditors through multiple deceptive practices, the SEC alleged each of the above statements, among many others, were materially false and misleading.

Since the administration change in January 2021, climate and ESG-related disclosures have become a focal point of the SEC. While the proposed rules mandating climate risk disclosure have garnered much of the attention recently (see Legal Update, SEC Proposes Mandatory Climate Disclosure Rules), the SEC previously established a Climate and ESG Task Force within the Division of Enforcement in March 2021 to ramp up enforcement efforts (see Legal Update, SEC Creates Climate and ESG Task Force in the Division of Enforcement). The task force is specifically mandated to identify material gaps or misstatements in ESG disclosures.

In the SEC's press release, Gurbir Grewal, Director of the Division of Enforcement, stated that "[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. By 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." Additionally, Melissa Hodgman, Associate Director of the Division of Enforcement, noted that "[w]hile allegedly concealing the environmental and economic risks posed by its dam, Vale misled investors and raised more than $1 billion in our debt markets while its securities actively traded on the NYSE."

The charges against Vale and statements from the Division of Enforcement serve as both:

Companies making voluntary ESG-related disclosure, whether in standalone sustainability reports or in SEC filings, should ensure they have proper oversight in place and consider extending their disclosure controls and procedures to cover such disclosure. For more information on ESG disclosure best practices, see Practice Note, Best Practices for Establishing ESG Disclosure Controls and Oversight.

For up-to-date information on other key developments regarding ESG and climate disclosure in the US, see Practice Note, Key Developments in ESG and Climate Disclosure Tracker. For a collection of Practical Law resources on ESG and corporate social responsibility (CSR), see Environmental, Social, and Governance (ESG) Toolkit: US.