2013 policy priorities for sustainable and responsible investors

The inauguration of President Obama for a second term provides an important moment to assess the nation’s level of policy effectiveness in areas of concern to investors who care about financial responsibility and sustainability as criteria for making sound investment decisions.

The fragility and volatility of the global economy -- highlighted by the collapse of major financial institutions in the United States and the loss of nearly $13 trillion of investor assets -- has shaken investor confidence since the vulnerability of large banks, investment firms and insurance companies was shown to be caused by excessive risk-taking and poor or nonexistent regulatory oversight. According to the Chicago Booth/Kellogg Financial Trust Index, 79 percent of investors have no trust in the financial system. Sixty-four percent of Americans believe, according to The 2012 Ethics and Action Survey: Voices Carry, that corporate misconduct was a significant factor in bringing about the current economic crisis.

Four years ago, the receptivity of the President’s transition team to these issues gave reason for hope among sustainable and responsible investors that systemic financial reforms would be put into place and that the business risks associated with climate change would be viewed as material to the financial bottom line. But financial institutions (and the power they wield over Congress) has delayed the implementation of important financial reform laws and regulations since 2009.

Let’s check on the progress of the path to reform:

The Securities and Exchange Commission (SEC)

Although the lack of regulatory oversight was partially responsible for the Great Recession of this generation, Congress continues to fail to provide the SEC with the budget and staff necessary to monitor, investigate and hold accountable those individuals and institutions that put the American people at risk through negligence or abuse. Unfortunately, the SEC only has 10 examiners for every trillion dollars in investment advisor assets under management (it was 19 back in 2005).

Its $1.3 billion annual budget and 5100 staff must oversee:

  • 10,000 investment advisers
  • 9,700 funds
  • 4,500 broker-dealers with more than 160,000 branch offices
  • 9,100 reporting companies’ disclosures and financial statements
  • 450 transfer agents
  • 5 national securities exchanges
  • 8 active clearing agencies
  • 9 nationally recognized statistical rating organizations
  • The Public Company Accounting Oversight Board
  • The Financial Industry Regulatory Authority
  • The Municipal Securities Rulemaking Board
  • The Securities Investor Protection Corporation. 

By comparison, the FDIC has a $2.7 billion budget and over 8,000 employees to monitor, as well as 7,700 financial institutions, which reflects how the SEC is severely under-resourced.

And then came the Dodd-Frank legislation.

Next page:  More about the SEC