United Nations Principles for Responsible Investment (PRI)
Ethics Metrics LLC is a professional services signatory to the United Nations Principles for Responsible Investment (PRI).
The Ethics Metrics' patent-pending process, the Ethics Framework™, monitors, measures, quantifies and rates the effectiveness of corporate governance on compliance, audit risks, codes of ethics, fiduciary duties, internal controls, delisting risks, systemic risk and equity valuation risks throughout the US 
financial industry.
The Ethics Framework applies US and Basel standands and regulations on governance, tranparency and compliance.
The Ethics Framework:
empowers boards to govern ethically by complying with laws and regulations thus solving systemc risk and related investment risks.
empowers shareholder-driven market discipline with transparency and independent Ethics Ratings.
empowers valuation of governance risk, systemic risk and regulatory caputure risk.
Ethical behavior and related compliance violations directly impact earnings, equity values, delisting risks of securities, systemic risk, employment levels and the economy.
For example, the Ethics Metrics Research Reports confirm the direct correlation between effective corporate governance and oversight of risk and financial performance, including investment risks, for shareholders. Ethics Metrics' submitted a confidential version of the reports to the SEC on January 19, 2010 in response to their request for comments on this issue for File No. S7-10-09, Facilitating Shareholder Director Nominations.
For example, any material violation of regulatory compliance, including the Code of Ethics and the well-managed standards for financial holding companies is a violation of the Corporate Governance Listing Standards of the NYSE, per Section 303A, and requires remediation and failing that, delisting of securities. As of January 1, 2010, the threshold for violations is lowered from material violations to any violation.
The Ethics Framework™, is the firm's patent-pending process, that measures and rates ethical behavior and related violations of Codes of Ethics and corporate governance listing standards that have a direct impact on:
Earnings,
Equity Values,
Systemic Risk,
Delisting Risks of Securities for Shareholders,
Fiduciary duty of investment advisers to disclose material facts to clients,
Risk/Return analysis under Prudent Investor Rule (loss of capital),
Bank Cyclicality,
Unemployment Levels.
Services and products include independent Ethics Ratings and Reports that bring transparency and market discipline to align ethical corporate governance with shareholder interests and stable employment for society.
The Ethics Framework measures and rates degrees of ethical and effective corporate governance on compliance risks, including systemic risk, all along the continuum of the financial market of the United States.
The Ethics Framework evaluates degrees of compliance risk and exposure to systemic risk and counterparty risk first at the source with the Boards of Directors and their financial holding companies (FHCs). Then the process measures the compliance risk as it flows past compliance gatekeepers of management, auditors, regulators, including members of the systemic risk council, and the Boards of Directors of investment advisers (IA) and investment management companies (IM) that are investing in the securities of the FHCs for their clients.
Ethics Ratings 1 and 2 represent compliance with the web of complex, interconnected federal regulations on sound, ethical and effective corporate governance on compliance risk. These include:
The Code of Ethics for financial holding companies and investment advisers, including investment management companies.
Financial holding company regulations on safe and sound banking practices per CAMELS Ratings 1 and 2 that include the well-managed and well-capitalized standards and the corporate governance listing standards per the exchanges.
The fiduciary duty of investment advisers to act with a duty of care and loyalty to each of its clients when assessing the impact of material facts and risks, including systemic risk, on investment values.
SEC regulations for Boards of Directors of FHC's and IM's on Corporate Governance and Board leadership structure and role in risk oversight per 17§ 229.407(h).
Ethics Ratings 3, 4 and 5 represent compliance violations of the foregoing regulations on effective corporate governance on compliance risk as measured by:
Risks matching CAMELS Ratings of 3, 4 and 5. CAMELS Ratings of 4 and 5 represent a troubled condition and poor management that cause systemic risk. CAMELS Ratings of 3, 4 and 5 require remediation to restore compliance and thus prevent systemic risk, termination of federal deposit insurance, and delisting of securities. These are examples of ineffective corporate governance over compliance by FHC's that are a material weakness that require remediation through restatement of earnings and capital and a qualified audit opinion on internal controls over financial reporting until the risks are cured.
These risks are measured and reported within the Ethics Metrics Reports 1 and 2.
For more information, please visit Products and Services.
Portfolio exposures to securities of the FHC's with Ethics Ratings of 3, 4 and 5. The prudent investor rule defines the fiduciary duty of investment advisers to assess corporate events impacting the risk/return profile of investments for clients. The Congressional bills for financial reform require designated investment advisers to assess, report, record and disclose exposures to systemic risk for the protection of investors.
Exposures to compliance risk and systemic risks of FHC securities owned by IA's are measured and reported with the Ethics Metrics Reports 3, 4 and 5.
For more information, please visit Products and Services.
The Ethics Framework also provides a comprehensive risk analysis and ratings as it relates to proxy votes by investment managers on effective corporate governance of risk oversight by financial holding companies.
The diagram below, by Ethics Metrics, shows and alignment of its Ethics Framework with the UN's PRI on ESG or Environment, Social and Governance.
UN PRI |
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| Ethics Ratings 1, 2 | Ethics Ratings 3, 4, 5 | Earnings and Equity | |||
| Compliance | Material Facts, Risks | Risks | |||
| UN PRI | E |
nvironmental | |||
| UN PRI | S |
ocial | Ethical corporate governance benefits shareholders, taxpayers and employment levels | Violations harm shareholders, taxpayers and cause unemployment | |
| UN PRI | G |
overnance | Ethical corporate governance means compliance with Corporate Governance Listing Standards and interconnected regulations that directly impact earnings | Core Violations Violations trigger required remediation or restatements impacting earnings, capital and equity values to cure compliance violations so as to avoid delisting of securities and restore full compliance |
See Core Violations |
| Ethics Metrics | E |
arnings | See Core Violations |
See Core Violations |
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| Ethics Metrics | E |
quity values | See Core Violations |
See Core Violations |
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| Ethics Metrics | P |
roducts and services from Ethics Metrics that measure and rate earnings and equity value risks |
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| Reports and Scorecards for Earnings Risks, Delisting Risks, and Systemic Risk in Equities from Financial Holding Companies (FHC) to Investment Advisers (IA). |
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| 1 | Ranking and Rating FHC's on exposure to earnings restatements |
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| 2 |
Estimated capital restatements for FHC's |
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| 3 | Ranking Report of IA's by $'s invested in FHC's |
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| 4 | Ranking Report of IA's by %'s of FHC assets invested in high risk equities: Ethics Ratings 3, 4, 5 |
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| 5 | Ranking Report of IA's by $'s of FHC assets invested in high risk equities: Ethics Ratings 3, 4, 5 |
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| 6 | Notification of compliance violations by FHC's, including delisting risks of securities | ||||
| Ethics Metrics | T |
ransparency and accountability |
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| Ethics Metrics | M |
atrix of Risks and Ethics Ratings |
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| Ethics Ratings 1, 2 | Ethics Ratings 3, 4, 5 | Earnings and Equity | |||
| Compliance | Material Facts, Risks | Risks | |||
| 1 | Violations of | Safety and soundness standards | Cause unsafe and unsound practices | Requires restatement to restore compliance | |
| 2 | Violations of | Well managed standards | Cause troubled condition and systemic risk | Requires restatement to restore compliance | |
| 3 | Violations of | CAMELS 1 and 2 | CAMELS 3, 4, 5 | Requires restatement to restore compliance | |
| 4 | Violations of | Well managed standards | Cause bank cyclicality | Requires restatement to restore compliance | |
| 5 | Violations of | Well managed standards | Cause unemployment | Requires restatement to restore compliance | |
| 6 | Violations of | Well managed standards | Violate requirement of financial holding companies | Requires restatement to restore compliance | |
| 7 | Violations of | Well managed standards | Restrict financial activities (Wall Street activities) per GLBA Section 103 | Requires restatement to restore compliance | |
| 8 | Violations of | Code of Ethics, Sarbanes-Oxley 406 | Violate corporate governance listing standards | Requires restatement to restore compliance and avoid delisting of securities | |
| 9 | Violations of | Laws and regulations and corporate governance listing standards | Ineffective Board oversight is the failure to detect and disclose illegal acts that are material misstatements and material weaknesses that require a qualified audit opinion | Requires restatement to restore compliance and avoid delisting of securities | |
| 10 | Violations of | Effective internal controls over financial reporting per Sarbanes-Oxley 404 | False certification of internal controls over financial reporting per SOX 302 if there are one or more material weaknesses | Requires restatement to restore compliance and avoid qualified audit opinion and material misstatement | |
| 11 | Violations of | Fraudulent statements per SEC Rule 17 §240.3b-6(d) | Requires restatement to restore compliance and avoid qualified audit opinion and material misstatement | ||
| 12 | Violations of | Fraud, Rule 10(b)-5 of the 1934 Securities Exchange Act, Fraudulent Financial Reporting: 1987-1997 | High risk equities subject to material facts | ||
| 13 | Violations of | Investment Advisers Code of Ethics, 17 §275.204A-1 | Violations of securities laws | High risk equities subject to material facts | |
| 14 | Violations of | Fiduciary Duty to report material facts to clients | High risk equities subject to material facts | High risk equities subject to material facts | |
| 15 | Violations of | Uniform Prudent Investor Act (1995) | High risk equities subject to material facts | High risk equities subject to material facts | |
| 16 | Violations of | Risk/Return | High risk equities subject to material facts | High risk equities subject to material facts | |
| 17 | Violations of | Duty to Monitor | High risk equities subject to material facts | High risk equities subject to material facts | |
| 18 | Violations of | Duty to Investigate | High risk equities subject to material facts | High risk equities subject to material facts | |
| 19 | Violations of | Loyalty | High risk equities subject to material facts | High risk equities subject to material facts | |
| 20 | Violations of | Compliance | High risk equities subject to material facts | High risk equities subject to material facts | |
| Ethics Metrics | G |
lossary of terms, a product and service of Ethics Metrics |
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