Dodd-Frank Act at 5 Years – Not Quite Done in Rulemaking

by Hank Boerner – Chairman – G&A Institute

So Here We Are Five Years on With The Dodd-Frank Act

Summer’s wound down/autumn is here  — while you were sunning at the beach or roaming Europe, there was an important anniversary here in the U.S.A. That was the fifth anniversary of “The Dodd-Frank Act,” the comprehensive package of legislation cobbled together by both houses of the U.S. Congress and signed into law by President Barack Obama on July 21, 2010.

The official name of the Federal law is “The Dodd-Frank Reform and Consumer Protection Act,” Public Law 111-203, H.R. 4173. There are 15 “titles” (important sections) in the legislative package addressing a wide range of issues of concern to investors, consumers, regulators, and other stakeholders.

Remember looking at your banking, investment and other financial services statements …in horror…back in the dark days of 2008-2009?

The banking and securities market crisis of 2008 resulted in an estimated losses of about US$7 trillion of shareholder-owned assets, as well as an estimated loss of $3 trillion ore more of housing equity, creating an historic loss of wealth of more than $10 trillion, according to some market observers.

That may be an under-estimation if we consider the wide range of very negative ripple effects worldwide that resulted from [primarily] reckless behavior in some big investment houses and bank holding companies…rating agencies…and then there were regulators dozing off…huge failures in governance by the biggest names in the business…and therefore the ones that investors would presumably place their trust in.

In response to the 2008 market, housing and wealth crash, two senior lawmakers — U.S. Senator Christopher Dodd of Connecticut and Congressman Barney Frank of Massachusetts — went to work to enact sweeping legislation that would “reform” the securities markets, address vexing issues in investment banking practices, and “right wrongs” in commercial banking, and consumer finance services. (Five years on, both are retired from public office. Congressman Frank is still vocal on the issues surrounding Dodd-Frank.)

After more than a year of hearings – and intense lobbying on both sides of the issues — the The Dodd-Frank Act became the Law of the Land — and the next steps for the Federal government agencies that are charged with oversight of the legislation was development of rules to be followed.

So — in July, we observed the fifth anniversary of Dodd-Frank passage. I didn’t hear of many parties to celebrate the occasion. Five years on, many rules-of-the-road have been issued — but a significant amount of rule-making remains unfinished.

Yes, there has been a lot of work done: there are 22,000-plus pages of rules published (after public process), putting about two-thirds of the statutes to work. But as we write this, about one-third of Dodd-Frank statutes are not yet regulatory releases — for Wall Street, banks, regulators and the business sector to follow.

Is The Wind At Our Back – or Front?

What should we be thinking regarding Dodd-Frank half-a-decade on? Are there positive results as rules get cranked out — what are the negatives? What’s missing?

We consulted with Lisa Woll, the CEO of the influential Forum for Sustainable & Responsible Investment (US SIF), the asset management trade association whose members are engaged in sustainable, responsible and impact investing, and advance investment practices that consider environmental, social and governance criteria.

She shared her thoughts on D-F, and progress made/not made to date: “Congress approved the Act following one of the worst financial crises in our country. The 2008 crash impacted the lives of millions of Americans who lost their homes, jobs and retirement savings. The Dodd-Frank Act helped to bring about much-needed accountability and transparency to the financial markets.”

Examples? Lisa Woll thinks one of the most important achievement was creation of the Consumer Financial Protection Bureau (CFPB), “which is up and running and now one of the most important agencies providing relief to consumers facing abuse from creditors.” She points out that CFPB has handled more than 677,000 complaints since it opened its doors four years ago.

Put this in the “be careful what you wish for” category: You may recall that the buzz in Washington power circles was that Harvard Law School professor Elizabeth Warren was slated to head the new bureau – -which was a concept championed by her. Fierce financial service industry opposition and Republican stonewalling prevented that appointment. Elected Senator from Massachusetts on November 6, 2012, she is now mentioned frequently in the context of the 2016 presidential race.

Continuing the discussion on Dodd-Frank, US SIF’s Lisa Woll points to a recently released regulatory rule that addresses CEO-to-work pay-ration disclosure. This is a “Section” of the voluminous Dodd-Frank package requiring publicly-traded companies (beginning in 2017) to disclose the median of annual total compensation of all employees except the CEO, the total of the CEO compensation, and the ratio of the two amounts.

Says Lisa Woll: “Disclosure of the CEO-to-worker pay ratio is a key measure to ensure sound corporate governance.”

She says in general US SIF members are pleased that the Securities & Exchange Commission (SEC) rule applies to U.S. and non-U.S. employees, as well as full-time, part-time, seasonal and temporary workers employed by the company or any consolidated subsidiaries, with some exceptions: “The rule will provide important information about companies’ compensation strategies and whether CEO pay is out of balance in comparison to what the company pays its workers. Those will be measurable results.”

What Doesn’t Work/ or May be Missing in D-F?

CEO Woll says investors were disappointed that the pay ratio provision (CEO-to-worker) did not include smaller companies and that up to five percent of non-U.S. employees may be excluded from reporting. Her view: “High pay disparities within companies can damage employee morale and productivity and threaten a company’s long-term performance. In a global economy, with increased outsourcing, comprehensive information about a company’s pay and employment practices is material to investors.”

The Conflict Minerals Rule

Another positive example offered by Lisa Woll: The Dodd-Frank Act requirement that companies report on origin of certain minerals that are used, and that originate in conflict zones such as the Democratic Republic of the Congo. (Section 1502 of Dodd-Frank instructed SEC to issue rules to companies to disclose company use of conflict minerals if those minerals are “necessary to the functionality or production of a product manufactured by the company”. This includes tantalum, tin, gold or tungsten.)

Lisa Woll observes: The submission of these reports exposes operational risks that are material to investors. Last year 1,315 companies submitted disclosures, according to Responsible Sourcing Network. We continue to urge more corporate transparency in conflict minerals reporting.”

Dodd-Frank Rule Making Scorecard

The US SIF CEO notes that of 390 rules required to be enacted, 60 rules have yet to be finalized and another 83 have not even been proposed, according to law firm Davis Polk & Wardell LP.

Woll: “One example is the Cardin-Lugar Amendment, requiring any U.S. or foreign company trading on a U.S. stock exchange to publicly disclose resource extraction payment made to governments on a project basis. We are still waiting for SEC to complete the rule.”

CEO Woll sees the ongoing effort by some members of the U.S. Congress to undermine or weaken The Dodd-Frank Act as “very concerning,” and putting investors at risk. “In my own work with our asset management members, I am seeing positive effects in that they have greater access to information in order to make an investment decision in companies. The examples are rules around transparency and disclosure. At the same time, asset managers lack access to information in a number of areas where rules are still pending, such as payment disclosures to companies by extractive companies.”

Of rules not yet adopted (or addressed), Lisa Woll urges continued work by SEC: “We hope to see more of the rules finalized so that we can move toward more transparent financial markets and a more sustainable economy.”

# # #

Notes: The Forum for Sustainable & Responsible Investment (US SIF) is an asset management trade association based in Washington, D.C. Member institutions include Bank of America, UBS Global Asset Management, Bloomberg, Calvert Investments, Legg Mason, Domini Social Investments, Cornerstone Capital, Walden Asset Management, and many other familiar names.

Members are engaged in sustainable, responsible and impact investing, and advance investment practices that consider environmental, social and governance criteria. Lisa Woll has been CEO since 2006.

Disclosure: G&A Institute is a member organization of US SIF and team members participate in SIRAN, the organization’s “Sustainable & Responsible Research Analyst Network.”) Other SIF entities include The International Working Group; Indigenous Peoples Working Group; and Community Investing Working Group. Information is at: http://www.ussif.org/

Are Consumer Companies Serious About What They Say In Their Sustainability/Responsibility Reports?

Forbes’ contributor Christopher Meyer seeks to ask and answer this question in our story selection this week. He explores the actions and statements about responsibility to society that leading consumer marketers make.  Is the commitment and action “for real,” or part of the effort to differentiate [a company] from its consumer market peers via smart PR?

For his examples the author looks at such enterprises as Luxottica (glasses), its peer Warby Parker; Toms (footwear), and Eileen Fisher (clothing).  Some of the perspectives offered are harsh – Warby Parker has made a “structural commitment to social benefit, while Luxottica pursues practices that shift consumer surplus to investors, an unsustainable form of capitalism.”  Some are praiseworthy:  Eileen Fisher claims “We don’t want sustainability to be our edge…we want it to be universal…”  Where this is relevant:  “As customers, we want to understand companies’ motivations because we think it will help us to identify those who are genuinely trying to be part of the solution,” notes the writer.

The Forbes contributor is focused in this commentary on some well-known domestic and global consumer marketers, and explores what might motivate a potential buyer to look more closely at the culture,  commitments, statements and achievements of companies who want their business (to purchase clothing, glasses, apparel, foods such as Whole Foods, furniture at IKEA, and so on).

This is an important development in consumer marketing.  Moving up the value chain, we at G&A Institute monitor the large consumer marketers and their sustainability journeys.   We’ve been assisting clients to sell more products and services to these larger customers by strategically aligning, executing and communicating effectively about their (the supplier) sustainability & responsibility programs.

Examples are an industrial manufacturer, a food company or a service company service selling to the large, globally-recognized corporate sustainability leader that in turn is likely selling to the consumer (think of such enterprises as Unilever, Procter & Gamble, Hershey’s, Nestle’s and other large diversified companies in the consumer and institutional food space).  The majority of these consumer market leaders are jockeying to be the leader among peers.) So, at the top of the value chain, the major customers are asking ever-more penetrating questions of their suppliers/providers. This is occurring in many industries – food, vehicles, apparel, beauty products, beverages, hard goods, electronics, etc.

The takeaway here is that if your customer is consumer focused, tune in to what leaders such as Warby Parker is doing (good examples in the Top Story).  If you are selling higher up to the global sustainability leadership companies, if you are not already doing so, be prepared to respond to a growing list of questions about your ESG strategies, goals & objectives, measurements, performance, and achievements.  These questions are asked directly and through third party service providers such as EcoVadis or Sedex, while still others are aligning their suppliers with the same reporting frameworks that they use, such as the Global Reporting Initiative’s (GRI G4) or the CDP questions.

At all levels of the value chain, sustainability and responsibility in various forms are increasingly on the minds of the world’s customers!

If you’d like to find out more about how G&A can help your organization to build a more efficient and effective sustainable supply chain program, please contact Louis Coppola at lcoppola@ga-institute.com.

To read the full story, click the link below:

How Can We Know Which Companies Are Serious About Sustainability?
(Wednesday – September 16, 2015)
Source: Forbes – A growing number of consumers want to “vote with their wallets” – but the information provided about companies resembles political campaign messages rather than clear evidence of sustainability

Reporting 2025 – Perspectives: Interview with Prof. Mervyn King, Chairman, International Integrated Reporting Council (IIRC)

The GRI global organization is conducting a series of interviews with thought leaders to gain their perspectives on what they expect the main issues to be on corporate agendas and their public reports in 2025.  These are produced monthly and G&A Institute will share these through our websites, newsletters, blog, social media, and various other channels to raise awareness of this important initiative.

Interview with Prof. Mervyn King, Chairman, International Integrated Reporting Council (IIRC)

See also the interview summary
21 September 2015

Results Announced for 2015 Dow Jones Sustainability Indices Review

This week, the results of the RobecoSAM’s annual Corporate Sustainability Assessment (CSA) were announced.  Along with it, we see the flurry of press releases coming from companies announcing their results — their inclusion in the various DJSI family of indexes or being recognized with the various other highly coveted recognitions  (such as the Gold Class, or Sector Leader recognitions, among others).

This year the three largest additions to the DJSI World index are:

  1. Bank of America Corp
  2. Telfonica SA
  3. BHP Billiton Ltd

The three largest deletions, or companies dropped from the DJSI World Index are:

  1. Cisco Systems Inc
  2. PepsiCo Inc
  3. Royal Bank of Canada

This morning on the RobecoSAM 2015 Results Webinar, we learned that the participation of companies in the CSA has been increasing dramatically year over year, with this year being no exception showing an increase of 4%.

This year was also the first year that companies which had a Media & Stakeholder Analysts (MSA) case against them in the RepRisk ESG risk monitoring tool received a report which details the way the case was considered in the scoring, and allows for a more comprehensive understanding of how negative public media attention can affect the CSA scoring by Robeco.

Companies that participated also received their benchmark scorecards last week, which gives a comprehensive view of how they performed on various dimensions of the CSA, and compares their results to their peers and the entire group of participating companies.

At G&A, several of the clients we assisted with the CSA increased their scores dramatically, and meetings are underway to discuss their benchmark scorecards.  Now we begin the process towards identifying their gaps, deciding on strategies to fill them, and ultimately become a more sustainable enterprise.  In addition, our clients are increasingly focused on working with us and their IR teams to engage with investors — the goal being to cultivate long term, patient, stable, and sustainable investors in their shareholder base.

If you’d like to know more about how G&A can assist your organization with the RobecoSAM CSA, and strategically engage with the growing number of investors integrating ESG, please contact Louis Coppola at lcoppola@ga-institute.com to explore this opportunity.

Congrats to all the winners, and good luck to all the participants for next year!

To view the full results, see the MarketWatch article below:

Results Announced for 2015 Dow Jones Sustainability Indices Review
(Thursday – September 10, 2015)
Source: MarketWatch – S&P Dow Jones Indices, one of the world’s leading providers of financial market indices, and RobecoSAM, the investment specialist focused exclusively on Sustainability Investing, today announced the results of the annual Dow…

Governance & Accountability Institute: INTERNSHIP AVAILABLE – GRI Data Partner Reports Analyst

The opportunity:  Learn to Analyze Data and Interpret Content from Global Reporting Initiative Sustainability Reporting

Position:  GRI Data Partner – Sustainability Report Analyst Internship Available

Location: Virtual (our offices are in NYC).  Most work will be done remotely with a flexible work schedule – at your own location.  Initial training via Web.

Time Requirements: This position will require approximately 10 hours a week and would begin ASAP.  The timing of the work is flexible and can be done remotely for a majority of the time required.

Description

The Governance & Accountability Institute is a New York City-based company that specializes in research, communication, strategies and other services focused on corporate sustainability and corporate ESG performance (“Environmental, Social, Governance”) issues.  GAI is offering the opportunity for an internship for a qualified student interested in learning more about these topics.

This is a very fast growing area of interest to corporations, and Wall Street interests.  The GRI reporting framework is the most widely used in the world for these types of reports.

G&A is the exclusive data partner for the United States, United Kingdom and Republic of Ireland for the Global Reporting Initiative (GRI).  The Global Reporting Initiative is a non-profit organization that promotes the use of sustainability reporting as a way for organizations to become more sustainable and contribute to sustainable development.

GRI provides all companies and organizations with a comprehensive sustainability reporting framework that is the most widely used and respected around the world.  Currently thousands of global organizations use the GRI to report on their Environmental, Social, and Corporate Governance strategies, impacts, opportunities and engagements.  (www.globalreporting.org).  The G&A Institute interns learn important elements about GRI reporting that can be used in their future work situations.

As the exclusive US, UK and Ireland data partner of the GRI, The Governance & Accountability Institute’s role is to collect, organize, and analyze sustainability reports that are issued by corporations, public entities, not-for-profits and other entities in The United States, United Kingdom and Republic of Ireland for the benefit of all stakeholders.  In this role the analyst will work as part of a team to analyze these reports for inclusion in the largest global database of Sustainability reports, the GRI’s Sustainability Disclosure Database (database.globalreporting.org).

The Intern Opportunity

Learning to read, analyze, use, and structure data from reports using the GRI G3, GRI G3.1, GRI G4, GRI-Reference as well as NON-GRI corporate and institutional reports will comprise the majority of this assignment.  The research will also contribute to several published research reports on various trends in sustainability reporting which are widely referenced by media, academics, business, capital markets players and other important sustainability stakeholders.

The student(s) selected will have the opportunity to experience a fast-paced, highly-adaptive (and nurturing) culture in a small but growing company with a unique niche. This is a hands-on position with considerable learning opportunity for those headed for a career in corporate responsibility.

Applicants should demonstrate a strong background and keen interest in ESG and Sustainability issues and topics.   A plus: strong technical, communication, and organizational skills.  Basic skills in Excel and researching on Google are required. Applicants with writing and editing abilities will have preference.

Interested students should send a resume outlining education and skill sets. As an option, a one to two page introduction essay on what you would like to learn more about (in terms of your career goals), what your interests are, and anything else you feel may be relevant to the job/our organization will also be welcomed.    Samples of writing or research on sustainability or other topics are also a plus.

G&A interns get public recognition for their work in our published reports, on our web platform and in other ways. To see what other interns have been doing (and their backgrounds) check out the intern Honor Roll at http://www.ga-institute.com/the-honor-roll/

Contact Information
Louis D Coppola
Governance & Accountability Institute,
845 Third Ave, 6th Floor, NY, NY  10022
Email: lcoppola@ga-institute.com
Ph: 646-430-8230 x14

Climate Change — Citi Group Weighs In: Do We Invest Up Front in A Low Carbon Economy…or Not? What Are the Consequences of Action / No Action?

There are legions of experts and scientists focusing on climate change, and discussing their views on the root causes (of polar caps melting at an alarming pace, oceans steadily warming and seas rising, serious droughts increasing, super storms, and more dire results of global warming).

There are also CC and GW “deniers,” especially some folks in industry and the public sector, who for their own various reasons debunk the notion that actions of humankind are behind the warming of the planet.   We can expect that somewhere in the broadening debate leading up to the 2016 U.S. presidential campaigning we’ll see climate change as an issue, with pro and con positions articulated by candidates and their supporters.

What about the financial impact related to global warming — who is weighing in on that aspect, and what could influence will the cost of the planet warming be to our human society?  America’s third largest bank has focused on these issues and offered up a report for consideration.  Citi Group’s “Citi Global Perspective & Solutions” unit examined two scenarios — the cost/benefits of taking “action” or choosing “inaction” — do we move toward a low-carbon economy or not — and what would be the financial consequences of each choice.

Is transitioning to a low-carbon energy mix the pathway to lower the financial impact of global warming on society?  The report authors looked in depth at a potential investment in the “action” scenario, as well as the “inaction” approach over the next quarter century.   The results may be surprising to you.

Teaser from Citi’s report:  Says The Guardian editors of the report, “[This conclusion] soundly refuses the main argument against climate action — that it’s too expensive, with some contrarians even having gone so far as to claim that cutting carbon pollution will create an economic catastrophe…”

You’ll want to read this story — consider it be one more resource now added to the climate change debate.  As such, the Citi unit’s report is sure to be chatted up by folks who favor the taking “action” scenario.

Citi report: slowing global warming would save tens of trillions of dollars 
(Thursday – September 03, 2015)
Source: The Guardian – Citi Global Perspectives & Solutions (GPS), a division within Citibank (America’s third-largest bank), recently published a report looking at the economic costs and benefits of a low-carbon future. The report considered two…

Reporting 2025 – Perspectives: Interview with Daniel Schmid, Chief Sustainability Officer, SAP SE

The GRI global organization is conducting a series of interviews with thought leaders to gain their perspectives on what they expect the main issues to be on corporate agendas and their public reports in 2025.  These are produced monthly and G&A Institute will share these through our websites, newsletters, blog, social media, and various other channels to raise awareness of this important initiative.

Interview with Daniel Schmid, Chief Sustainability Officer, SAP SE
Please note that for Mr. Schmid’s interview only an interview summary is available
7 September 2015

Reporting 2025 – Perspectives: Interview with Marina Migliorato, Head of Sustainability Innovation and Stakeholder Engagement, Enel

The GRI global organization is conducting a series of interviews with thought leaders to gain their perspectives on what they expect the main issues to be on corporate agendas and their public reports in 2025.  These are produced monthly and G&A Institute will share these through our websites, newsletters, blog, social media, and various other channels to raise awareness of this important initiative.

Interview with Marina Migliorato
Head of Sustainability Innovation and Stakeholder Engagement, Enel
See also the interview summary
7 September 2015