If there is one current topic that commands the attention of investors and other corporate stakeholders these days, it is ESG. ESG-related issues have of course previously led to securities suits and other types of D&O claims. However, amidst the current heightened focus on ESG, there is still a great deal of uncertainty about what ESG-related D&O claims might look like.


For that reason, the enforcement action that the SEC filed last week against the Brazilian mining company Vale, S.A. in connection with alleged misrepresentations the company allegedly made before the January 2019 collapse of its Brumadinho dam is noteworthy. Of particular interest to observers focused on ESG concerns is the fact that the SEC specifically alleged that the company “regularly misled local governments, communities, and investors about the safety of the Brumadinho dam through its environmental, social, and governance (ESG) disclosures.” The SEC’s April 28, 2022 press release about the Vale action can be found here. The SEC’s complaint in the action can be found here.



Vale is one of the world’s largest mining companies. The company is based in and has significant mining operations in Brazil. In November 2015, well before the events surrounding the Brumadinho dam collapse, another dam, known as the Fundão dam, near the city of Mariana, Brazil, and which was co-owned by Vale, collapsed, resulting in 19 deaths and significant environmental and property damage.


In the wake of the Mariana disaster, the company made a public commitment to dam safety. Among other things, the company vowed “Mariana never again” and publicly declared its “commitment to sustainability” and to achieving “zero harm” to its employees and to surrounding communities. In the months following, the company made a number of public statements purporting to show that it was living up to its commitments.


Unfortunately, on January 25, 2019, the Brumadinho dam collapsed, which killed a total of 270 people and (according to the SEC’s complaint) resulted in the “poisoning the Paraopeba River and its tributaries and causing immeasurable environmental, social and economic devastation.” The Brumadinho dam collapse was, the complaint alleges, “one of the worst mining disasters in history.” In the immediate aftermath of the collapse, the company’s share price declined over 25%.


The SEC Action

According to the SEC’s complaint, in the period between the two dam collapse disasters, the company, while profiting from the associated mine’s production, “intentionally concealed alarming signs of the [Brumadinho] dam’s instability from the investing public and Brazilian authorities.” Vale also “deliberately manipulated multiple dam safety audits; obtained numerous fraudulent stability declarations; and regularly and intentionally misled local governments, communities, and investors about the dam’s integrity.”


Among other things, the complaint alleges that Vale maintained its deception about the safety of the dam by obtaining a series of “fraudulent and deceptive” stability declarations from its retained experts in connection with corrupted audits of the Brumadinho dam,” while at the same time the company was aware of data showing that the dam did not meet even Vale’s own safety standards, “much less international standards for dam safety.”


The SEC’s complaint alleges that the company’s concealment of the “true condition” of the Brumadinho dam caused “Vale’s sustainability reports, periodic filings, and other Environmental, Social, and Governance (ESG) disclosures to be materially false and misleading.”


The complaint charges Vale with violating antifraud and reporting provisions of the federal securities laws and seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.



The SEC’s complaint presents the allegations against Vale in harsh, accusatory terms. The complaint’s authors also made a point of emphasizing that many of the misrepresentations alleged in the complaint appeared in the company’s sustainability reports and ESG disclosures.


The SEC’s press release quotes Gurbir Grewal, the head of the SEC’s Enforcement Division, as saying that “Many investors rely on ESG disclosures like those contained in Vale’s annual Sustainability Reports and other public filings to make informed investment decisions.” Grewal says further that “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.”


The complaint. like Grewal’s statements quoted in the press release, address the alleged harm to investors from the alleged misrepresentations. However, while the complaint emphasizes that investors were misled, the complaint also notes, and seems to make a point of noting, the alleged misrepresentations also misled local governments and communities. The allegations clearly seem to contain echoes of the “corporate stakeholders” school of thought.


Indeed, the complaint not only alleges that these other constituencies were misled, but the complaint also emphasizes that these other constituencies were, in addition to investors, also harmed. As Grewal himself put it, the misrepresentations “compounded the social and environmental harm” caused by the dam collapse.


The complaint’s allegations seem to suggest that the SEC has firmly and deliberately taken up the ESG flag. The SEC’s vigorous assertion of the environmental and social harms the company allegedly caused strongly suggests the agency’s willingness to take up the ESG cause, and, at a minimum, take actions to protect interests beyond just those of investors.


The SEC’s enforcement action also highlights the ways in which ESG-related issues can lead to D&O claims. There have of course been prior ESG-related D&O claims. For example, there is the climate change related lawsuit that investors filed against ExxonMobil. There is also the series of board diversity lawsuits that plaintiffs’ lawyers filed in 2020 and 2021 against the boards of several companies concerning the absence of black directors in their boardrooms.


But while there have been prior ESG-related D&O claims, the overall shape of the risk of D&O claims from ESG-related concerns is still developing. The SEC’s allegations in this complaint and its emphasis of ESG concerns shows how ESG-related issues can translate into D&O claims. For anyone worried about the liability risks that ESG may present for companies and their executives, the SEC’s new complaint against Vale represents a milestone of sorts. At a minimum, it represents mandatory reading.


There is another significant aspect of the SEC’s action here, and that is that the target company is a non-U.S. company. The SEC specifically recognized this issue in its press release. The press release quotes Melissa Hodgman, the Associate Director of the SEC’s Enforcement Division, as saying that “Today’s filings shows that we will aggressively protect our markets from wrongdoers, no matter where they are in the world.”


It is worth noting as a final matter that Vale has already been the subject of extensive private securities litigation as a result of the two dam collapses. Vale was first hit with a securities suit in 2015 after the Mariana dam collapse; that securities suit ultimately settled for $25 million. Vale was also hit with a separate securities suit in the U.S. following the Brumadinho dam collapse; that second lawsuit remains pending. Clearly, U.S.-listed non-U.S. companies face a significant securities litigation risk in the U.S.