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Ethics Metrics LLC

Service Providers Framework 2019

You are in Strategy and Governance » Policy on ESG beliefs

Policy on ESG beliefs

SG 01. Responsible investment policy

01.1. Describe how your organisation’s philosophy incorporates environmental, social and governance factors, and the link to your business offerings.

The philosophy at Ethics Metrics, as it relates to governance issues, is to map, model, measure and rate interconnected U.S. federal laws and regulations on banking, securities and the G20/OECD Corporate Governance Principles for large ($10 billion of assets or more) bank or depository institution holding companies (DIHCs). This includes 100 large DIHCs that own about 80% of the industry's total assets of $17 trillion. The U.S. banking industry is a black hole of concealed or confidential supervisory information that results in superior information or information asymmetries that benefit the banking institutions while harming their global investors. Directors have a duty to disclose material information under the OECD Corporate Governance Principles and U.S. securities laws. Ethics Metrics' analytics and reports bring transparency to the concealed information with credit ratings that range from safe, sound and ethical performance to unsafe and unsound practices and potential systemic risk and fraud.  Shining light on model risks, fraud and systemic risks in the U.S. banking industry is designed to solve inefficient markets, ignite market discipline and restore market integrity.

01.2. Indicate whether you have policies that formalise the incorporation of your ESG beliefs in your business offerings.

01.3. Indicate the components/types of your internal policy and provide the URL and/or an attachment of the document/s if they are publicly available.

Policy components/types

Public availability

Public availability

Public availability

01.4. Indicate how these are put into practice internally across the organisation.

01.5. Additional information [OPTIONAL]


SG 02. Norms used to develop policies

02.1. Indicate what frameworks and guidelines you have used to develop your organisation’s policies. Tick all that apply.

          U.S. Federal banking and securities laws and related judicial opinions
        

02.2. Additional information. [OPTIONAL]

Ethics Metrics also maps, models, measures and rates relevant U.S. federal laws and regulations on governance, disclosures and audit standards.


SG 03. Policy offerings to clients

03.1. Indicate whether you offer standard, off the shelf, policies to clients as part of your product offerings, and/or whether you create tailored versions for individual clients.

Off the shelf
Tailored
Asset class-specific RI guidelines
Sector-specific RI guidelines
Screening/exclusions policy
Engagement policy
(Proxy) voting policy
RI guidelines set out within the Investment Policy Statement (IPS)
RI guidelines set out in a freestanding RI policy
Multi-year RI implementation project plan
Conflict of interest management policy
Stockbroker allocation policy
Securities lending policy
Other, please specify (1)
Other, please specify (2)
Other, please specify (3)
None of the above

03.2. Provide a brief description of the key elements, any variations, or exceptions applying to these policies.

Directors have a duty to disclose material information under the OECD Corporate Governance Principles and U.S. securities laws. Ethics Metrics' analytics and reports bring transparency to concealed information in the U.S. banking industry with credit ratings that range from safe, sound and ethical performance to unsafe and unsound practices and potential systemic risk and fraud. Credit ratings are available for each of the 100 large U.S. Depository Institution Holding Companies (DIHCs). These ratings can then be applied across all asset classes for any of the 100 covered DIHCs, i.e., money markets, bonds, equity and swaps as part of a strategy to maximize gains and minimize losses.

03.3. Additional information. [OPTIONAL]


SG 04. ESG/RI in business offerings

04.1. Briefly describe how you include ESG/RI factors as part of your business offerings.

Business area

Reporting

How you include ESG/RI factors

Ethics Metrics incorporates the following governance factors within its quarterly credit ratings: (1) governance oversight, a potential material weakness for internal control over financial reporting under Sarbanes Oxley,  (2) compliance with the Code of Ethics under Sarbanes Oxley, (3) compliance with federal banking regulations on safe and sound practices, and (4) potential audit risk and related securities and accounting fraud. 

Active Ownership Services

How you include ESG/RI factors

Ethics Metrics focuses on three interconnected types of active ownership services on governance risks in the U.S. banking industry. First, the firm submits public comments to the Securities and Exchange Commission on governance and disclosure risks in the U.S. banking industry. Second, the firm works closely with bank regulators to solve governance and disclosure risks. Third, the firm leads Comprehensive Paid Engagements for PRI Signatories on the Collaboration Platform to solve undisclosed governance risks that directly impact money market, bond, equity and swap asset classes.

Investment Consultancy

How you include ESG/RI factors

Ethics Metrics' advisory and consulting services include (1) unique risk/return analytics to maximize gains and minimize losses within all asset classes for DIHC investments, (2) evaluating gross credit exposures for each DIHC with other DIHCs, (3) monitoring DIHC equity exposures for over 1,100 registered investment advisers (asset owners and investment managers) in 19 countries, and (4) evaluating threats to the stability of the U.S. financial system from large interconnected DIHCs and the potential for danger of default, default and systemic risks, as defined in the Dodd Frank Act. For additional information, visit www.grosscreditexposurereport.com, www.equitycontagionrisk.com and systemicriskdashboard.com.

Research and Data Provision

How you include ESG/RI factors

Ethics Metrics incorporates the following governance factors within its quarterly credit ratings: (1) governance oversight, a potential material weakness for internal control over financial reporting under Sarbanes Oxley,  (2) compliance with the Code of Ethics under Sarbanes Oxley, (3) compliance with federal banking regulations on safe and sound practices, (4) potential audit risk and related securities and accounting fraud, (5) potential litigation and related liquidity risks and (5) potential dangers of default, default and systemic risks within large interconnected DIHCs, as defined in the Dodd Frank Act.

04.2. Indicate the roles in your organisation, and indicate for each whether they have oversight and/or implementation responsibilities for ESG/RI within the organisation.

Roles present in your organisation
Oversight/accountability for ESG/RI
Implementation of ESG/RI
Board
Directors
Chief Executive Officer (CEO), Chief Financial Officer (CFO)
Chief Operating Officer (COO), Chief Information Officer (CIO)
Other chief-level staff
Other heads of department
Dedicated ESG/RI staff
Other role, specify (1)
Other role, specify (2)
Other role, specify (3)
None of the above

04.3. Indicate how you ensure ESG/RI expertise for the roles where there are RI oversight/accountability or implementation responsibilities.

04.4. Indicate whether your organisation has any ESG/RI linked incentives for its employees.

04.5. Describe the ESG/RI linked incentives.

Benefits and compensation tied to achieving business goals.

04.7. Additional information [OPTIONAL]


SG 05. Outsourcing of services

05.1. Indicate whether you outsource some of your services. Report percentage of services outsourced as percentage for that specific business area.

Business area

SG 06. Providing training/education

06.1. Indicate whether you provide training/educational services on ESG/RI. Tick all that apply.

06.2. Describe the main components of your training/educational services on ESG/RI and any variations depending on the group you provide training/education to.

Educational content summarized at http://www.systemicriskandcorporategovernancecenter.com

06.3. Describe whether these training/educational services include any commercial elements.

          Education includes review of relevant laws and regulations and relevant case studies for Boards of Directors and senior management.
        

06.4. Additional information. [OPTIONAL]


SG 07. Applying, advancing and promoting the PRI principles

07.1. Describe how your organisation applies, advances and promotes the PRI Principles.

Ethics Metrics integrates governance risks throughout all of its research, reports, and (1) public comments to the Securities and Exchange Commission, (2) published papers on the Harvard Law School Forum on Corporate Governance and Financial Regulation and (3) Comprehensive Paid Engagements that are led by Ethics Metrics on the PRI's Collaboration Platform.

07.2. Highlight whether there are any ways that your organisation would like to engage further with the PRI. [OPTIONAL]

Creating a special Advisory Committee within the UNPRI for U.S. DIHC Governance Risks for 283 PRI Signatories across 19 countries. The 283 Signatories are amongst the largest in the world with $19 trillion of total equity investments. All these Signatories face the foregoing governance and related DIHC investments risks. This committee will be led by the participants in the Comprehensive Paid Engagements led by Ethics Metrics.


SG 08. Actions taken to promote responsible investment

8.1. Indicate which of the following actions your organisation has taken to promote responsible investments during the reporting year, independently of collaborative initiatives.

8.2. Additional information. [OPTIONAL]


SG 09. Long term trends

09.1. Indicate which of the following long-term trends are addressed in your product outputs.

          Unresolved governance risks, dating back 40 years, contribute to boom and bust cycles in the U.S. banking industry.
        

09.2. Explain how this long-term trend affects your product outputs.

The unresolved governance risks in the U.S. banking industry are measured, modeled and rated wtihin all of the research and individual DIHC reports and on a consolidated basis for each quarter from 2005 to the present. A summary is published, for the public, through the http://www.SystemicRiskDashboard.com.


SG 10. Interaction with asset owners

10.1. Indicate whether you interact with asset owner clients.

10.3. Additional information. [OPTIONAL]

The new Comprehensive Paid Engagement includes interaction with asset owners.


SG 11. Aligning approach with investor goals

11.1. Describe how you typically align your organisation’s philosophy and approach to ESG/RI with your investor clients’ goals.

Reports, research and ratings by Ethics Metrics offer transparency on undisclosed governance risks, that represent a range of performance from compliance and ethical performance to potential fraud and systemic risk. This information represents actionable intelligence to maximize gains and minimize losses for first movers. This is disruptive information that shines light on model and investment risks, including ESG scores, that omit this material information for large U.S. bank or depository institution holding companies (DIHCs).

11.2. Additional information. [OPTIONAL]


SG 12. ESG recommendations not aligned with investor goals

12.1. Describe what steps you take, if any, when your ESG recommendations are not in line with your investor clients’ goals.

Share free research and papers on our website, http://www.ethicsmetrics.com, and assist other organizations that are seeking to address undisclosed governance and investment risks that represent potential fraud, dangers of default, default, systemic risk, orderly liquidation and potential loss of capital.

12.2. Additional information. [OPTIONAL]


SG 13. Seeking feedback from clients

13.1. Indicate whether you seek feedback from clients on your RI/ESG services and product offerings

13.2. Describe how you use this feedback in your RI/ESG services and product offerings.

Work closely with regulatory authorities to integrate new regulations and related metrics.


SG 14. Managing conflicts of interest

14.1. Indicate whether your organisation has a policy for managing potential conflicts of interest.

14.2. Describe how you manage potential conflicts of interest.

Model parameters are mapped to existing regulations thus creating a uniform, independent and mathematical system that is free of outside influences. Subscriptions are based on exposures at risk, not on potential outcomes. Internal non-disclosure agreements prevent sharing of confidential information.

14.3. Describe how you ensure that company employees do not derive any personal gain from the use of information collected during your work process.

Internal non-disclosure agreements prevent sharing and trading on confidential information. Employees must earn the right to have access to confidential information that is actionable intelligence.

14.4. Additional information. [OPTIONAL]


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