Violating the commandment not to bear false witness against investors has led to charges against Inspire Investing over claims it would not make investments that went against religious values.

The SEC charged that Inspire misrepresented to investors that it engaged in “biblically responsible investing.” Inspire had promised investors it “would not invest in companies that had ‘any degree of participation’ in certain enumerated business practices that Inspire determined did not align with biblical values.” On September 19, 2024, the SEC announced settled charges.

A broken promise

Yet it came to pass that Inspire made investments that did not, purportedly, align with those biblical values, and the SEC forced it to repent. As the Settled Order recites, Inspire’s “actual investment process deviated from what it represented to clients” and investors. The wages of such sin? A $300,000 penalty from the SEC. The settlement did not include an order of disgorgement.

This case represents one of the rare instances of government enforcement of religious promises – and that only because those promises were made by a regulated financial entity. But it would be a mistake to mischaracterize this simply as an amusing rarity. Instead, this should be seen as a hint to how the SEC will be approaching environmentally-focused enforcement efforts – even in the absence of specific rules and regulations requiring environmental disclosures.

This might seem surprising given recent SEC about-faces on requiring greater environmental disclosures, many of which came after heightened expectations (and concerns) about a new era of enforcement focus. Thus, on March 4, 2021, the SEC had announced, with great fanfare, the creation of an ESG Task Force to “develop initiatives to proactively identify ESG-related misconduct.”

More recently the SEC shuttered the Task Force with far less attention (see SEC quietly disbands its Climate and ESG Enforcement Task Force). Furthermore, the SEC’s authority to mandate various environmental disclosures has been judicially challenged, and many of the SEC’s more expansive mandates have been stayed.

The failure of the SEC to require various forms of environmental disclosures will not impede the SEC’s use of environmental promises to bring enforcement cases.

It might be excusable to see this as a signal that the SEC will turn away from aggressive environmental enforcement actions. However, the absence of specific guidelines is not likely to dissuade the SEC from an active enforcement agenda. Instead, the SEC is likely to rely on its old standby: prosecuting those whose promises fall short – just like it did in the Inspire action.

Notably, the Inspire enforcement action was preceded by a settled administrative proceeding involving Keurig Dr Pepper (Keurig), the manufacturer of single-use coffee pods. In this settled administrative proceeding, the SEC recited that Keurig misstated the extent to which these pods were recyclable. In particular, when stating in publicly filed documents that the pods were recyclable, Keurig did not disclose that “two of the largest recycling companies in the United States had expressed significant concerns to Keurig regarding the commercial feasibility of curbside recycling of K-Cup pods at that time.” 

Keurig was charged with violating the rules against making inaccurate statements in public filings, and fined $1.5 million.

SEC environmental enforcement

What do coffee and religious devotion have in common? (Other than the fact that many are devoted to their morning coffee with an almost religious intensity.) And what do these cases say about the future direction of environmental enforcement efforts?

Notably, in both cases, the settlements did not include a component of disgorgement. That is, the settling parties did not have to repay defrauded investors or other victims, since there was no evidence that the companies had improperly benefitted from their misconduct. Nor was there any recitation there was deliberate misconduct or intent to deceive, or that investors felt defrauded, or even harmed by the alleged misdeeds.

Indeed, there was no specific recitation that investors believed that the misstatements were material to their investment decisions, or to consumers in choosing which coffee pods to purchase. Commissioner Hester Peirce made some of these points in dissenting from the decision to bring the settled case.

While both of these cases seem relatively minor, they point to how the SEC is likely to bring environmental enforcement cases in the future. These cases demonstrate that the absence of any statutory or regulatory basis requiring environmental disclosures will not prevent the SEC from bringing actions where it sees even the slightest disparities between a firm’s public statements about its ecological aspirations and the realities of its achievements.

Moreover, these actions demonstrate the SEC’s willingness to bring cases even when there was no deliberate intent to deceive, improperly obtain benefits, or demonstrated harm to investors or consumers; or even a showing that the alleged misrepresentation was material.

What happens next? Do firms tone down their environmental aspirations (or at least their public affirmation of them) in order to lessen the risk of an SEC investigation? Will investor expectations lead to firms adopting more easily measured goals, rather than open-ended ambitions, so as to meet consumer demand yet minimize the risk that the SEC sees a gap between expectation and reality?

Whatever strategy is adopted, one thing is likely: the failure of the SEC to require various forms of environmental disclosures will not impede its use of environmental promises to bring enforcement cases, regardless of the absence of intent to mislead or harm to investors.

Howard Fischer is a partner in the litigation and white collar departments of Moses & Singer LLP. Howard is recognized as a leading expert and commentator on securities disputes, enforcement proceedings, and securities regulations, including related to digital assets.

As a former Senior Trial Counsel at the US SEC, he was entrusted with some of the most sophisticated and noteworthy cases that the federal government prosecuted in the last decade.