Environment

  • GHG Emissions
  • Air Quality
  • Energy Management
  • Water & Wastewater Management
  • Waste & Hazardous Materials Management
  • Ecological Impacts

Social Capital

  • Human Rights & Community Relations
  • Customer Privacy
  • Data Security
  • Access & Affordability
  • Product Quality & Safety
  • Customer Welfare
  • Selling Practices & Product Labeling

Leadership & Governance

General Issue Category
(industry agnostic)

Disclosure Topics (industry specific) for:
Investment Banking & Brokerage

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Employee Engagement, Diversity & Inclusion

Employee Diversity & Inclusion

Investment banking and brokerage companies face a high degree of competition for skilled employees. At the same time, the industry has a low level of diversity, especially among senior roles. In recent years, considerable media attention has been focused on cases of gender discrimination involving publicly listed companies in the industry. As the industry continues to undergo rapid innovation through the introduction of more complex financial products and computerized algorithmic and high-frequency trading, the ability of companies to attract and retain skilled employees will likely become increasingly material. By ensuring gender and racial diversity throughout the organization, companies are likely to expand their candidate pool, which could lower hiring cost and improve operational efficiency. Further, evidence suggests that diverse groups of employees at investment banking and brokerage companies may reduce risk taking for employees involved in risk-prone trading activities (e.g., trading), which could lower risk exposure of the firm as a whole. Enhanced disclosure regarding employee gender and racial/ethnic diversity, especially when provided by employee category, will allow shareholders to assess how companies in this industry are managing these risks and opportunities.

Product Design & Lifecycle Management

Incorporation of Environmental, Social, and Governance Factors in Investment Banking & Brokerage Activities

Environmental, social, and governance (ESG) factors can have material implications for the companies, assets, and projects that investment banks provide services to or invest in across a range of industries. Therefore, by taking these factors into account in their underwriting, advisory, and investing and lending activities, investment banks can address significant positive and negative environmental and social externalities. The potential for both value creation and loss associated with ESG factors suggests that investment banking and brokerage firms have a responsibility to their shareholders and clients to incorporate consideration of these factors into analysis and valuation related to all core products, including sell-side research, advisory services, origination, underwriting, and principal transactions. Investment banking and brokerage companies that fail to address these risks and opportunities could expose themselves to increased reputational and financial risks. On the other hand, appropriately pricing ESG risks could reduce investment banks’ financial risk exposure, help generate additional revenue, and/or open new market opportunities. To help investors understand how well companies in the industry manage performance around this issue, investment banks should disclose how ESG factors are incorporated into their core products and services.

Business Ethics

Business Ethics

The regulatory environment surrounding investment banking and brokerage companies continues to evolve both nationally and internationally. Companies are required to adhere to a complex and often inconsistent set of rules relating to performance and conduct as well as provide disclosure on issues including insider trading, anti-trust, price fixing, and market manipulation. In addition, investment banking and brokerage companies are subject to rules against tax evasion, fraud, money laundering, and corrupt practices. Finally, in some jurisdictions, enhanced rewards for whistleblowers may lead to an increase in the number of complaints brought to regulators. Firms that are able to ensure regulatory compliance through robust internal controls will be better positioned to build trust with clients, leading to increased revenue, and to protect shareholder value by minimizing losses incurred as a result of legal proceedings.

Professional Integrity

The business model of investment banking and brokerage companies is dependent on the development of client trust and loyalty. To ensure long-term, mutually beneficial relationships, companies need to provide services that satisfy the highest professional standards of the industry, which means taking measures to avoid conflicts of interest, misrepresentation, and negligence. Professional integrity also pertains to following a code of ethics with respect to transparency and disclosure. These measures are important both for strengthening a company’s license to operate as well as for attracting and retaining clients. Failure to comply with professional standards can harm not only the clients who rely on the advice, data, and key services these companies provide, but it may also negatively affect shareholders. Investment banking and brokerage companies could not only face legal penalties related to such actions, but also incur significant negative impacts on revenue from reputational damage. To maintain professional integrity, investment banking and brokerage companies need to ensure that employees have adequate training as well as know and adhere to applicable financial industry regulations. To comply with industry laws and regulations, employers need to ensure that they are aware of any past record of violation of employees who are involved in communications and providing advice to clients. Therefore, a description of management’s approach to assuring professional integrity can help investors understand risk exposure as well as any processes in place to avoid misconduct. Additionally, disclosure of the company’s amount of legal and regulatory fines and settlements can provide a clearer picture of the extent to which financial institutions are adhering to regulatory norms.

Systemic Risk Management

Systemic Risk Management

The 2008 financial crisis demonstrated the importance of managing risks to capital in the Investment Banking & Brokerage industry. Specifically, firms that failed to manage these risks suffered significant losses to the value of their financial assets while increasing the amount of liabilities held on the books, which, due to the interconnectedness of the financial system, contributed to a significant market disruption. The systemic nature of risk resulting from the interconnectedness of financial institutions has become a central concern of federal and international regulators. As a result, many banks are required to undergo supervisory stress tests to evaluate whether the company has the capital and liquidity to absorb losses, continue operations, and meet obligations in the event of adverse economic and financial conditions. Their failure to meet regulatory requirements could substantially raise future compliance cost as well as lead to monetary penalties. In an effort to demonstrate how these risks associated with banks’ size, complexity, interconnectedness, substitutability, and cross-jurisdictional activity are being managed, investment banks should enhance disclosure on quantitative and qualitative metrics measuring how well they are positioned to absorb shocks arising from systemic financial and economic stress and meet stricter regulatory requirements.

Employee Incentives & Risk Taking

Employee compensation structures in the Investment Banking & Brokerage industry can incentivize employees to focus on short-term or long-term company performance. Structures that have excessive focus on the short-term performance are likely to encourage excessive risk-taking and present adverse implications for long-term corporate value. Concern over this issue has led to increased regulatory and shareholder scrutiny since the 2008 financial crisis. Improved disclosure of employee compensation, focusing on the use of performance metrics and variable remuneration, policies around clawback provisions, supervision, control, and validation of traders' pricing of Level 3 assets will provide investors with a clear understanding of how investment banking companies are protecting corporate value.

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