ISLA to Support ESG Objectives in Securities Lending

Trade body will lead workstreams on five key action points to help share the securities lending market’s response to ESG challenges.

The International Securities Lending Association (ISLA) has issued a white paper outlining its plans to take a leadership role to support and promote ESG in securities lending.

The paper outlines the role of lending in the transition to a sustainable economy, and how ISLA supports the process. As ESG principles are increasingly being integrated into the investment process, ISLA says securities lending should not be left out.

“All securities lending programmes are therefore strongly encouraged to incorporate these [ESG] principles into their lending activities,” the paper says.

The paper also investigates how investors can engage in securities lending programmes without impeding responsible voting and stewardship criteria, also highlighting the significant role that securities lending plays in promoting the smooth functioning of capital markets.

“The fundamentals of secondary market liquidity, effective price discovery and efficient settlements should be expected and demanded by all relevant stakeholders across the ESG investment value chain,” the paper says.

ISLA says securities lending has an important role to play in both meeting individual market participants’ ESG objectives and in aiding the wider transition of the economy towards Paris-aligned and other sustainable goals.

To facilitate reaching industry consensus and help the market shape best practice, ISLA says it will lead a number of workstreams on five key action points:

  • the development of a best practice standard and a common understanding of ESG objectives in the context of securities lending arrangements
  • an update to current best practices for recalling securities and the creation of industry standards around voting which are in line with good governance principles
  • an update to current best practices to aid transparency for regulators around shareholder disclosure and identification
  • a feasibility study on how current market practice could be optimised to increase transparency
  • the development of high level standards for collateral selection and approaches to cash re-investment to align with lenders’ ESG objectives

ISLA said it will aim to bring together wider participation from members, market participants and other stakeholder groups to advance the securities lending market’s response to ESG challenges.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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