BNY Mellon applies new ESG data analytics system for collateral management clients

Custodian looks to tackle environmental, social and governance (ESG) concerns for collateral with new analytics based on MSCI ESG Ratings.

By Jonathan Watkins

BNY Mellon is looking to address growing client demands for environmental, social and governance (ESG) to be factored into all areas of their operations with new data analytics for collateral management.

The new capabilities allow clients to apply ESG scores to collateral eligibility schedules, enabling them to accept or reject securities as collateral based on the ESG characteristics of the assets.

The scores will be based on MSCI ESG Ratings – through BNY Mellon’s ESG Data Analytics – ranging from AAA to CCC. The data will allow clients to specify that they will only accept collateral that meets or exceeds a given threshold and providing them with the ability to be as discerning in weighing the ESG impact of their collateral tolerances as they are in their investment decisions.

BNY Mellon said its international collateral management clients using its electronic collateral schedule manager, RULE, can digitally express their ESG preferences by leveraging ESG ratings and indexes, adding that US clients are able to take advantage of these same ESG eligibility capabilities by updating their schedules using the current US methodology.

“Rolling out this capability takes RULE, a proven technology that has already transformed the process of negotiating collateral schedules, and expands it into a very crucial and topical area of focus for the industry,” says Brian Ruane, CEO of Government Securities Clearing Corp., clearance and collateral management and credit services at BNY Mellon. “Now, through the incorporation of capabilities from ESG Data Analytics, a client can bring their ESG priorities into negotiations around acceptable collateral, adding an entirely new dimension of utility to the platform.”

The custodian said MSCI ESG Ratings represent just the first input into its ESG collateral management capabilities in what will be an “iterative process of further honing the sophistication of the Data Analytics’ patent-pending ESG mapper”.

In future releases, BNY Mellon expects to add supplementary ESG data to clients’ ability to express their ESG preferences, making the offering even more responsive to their environmental, social and governance goals.

As industry associations look to apply sustainable measures to securities finance activities due to demands from market participants – particularly asset owners – BNY Mellon’s move marks one of the first collateral management initiatives.

BNY Mellon has made big investments in its ESG Analytics unit through personnel, data management capabilities and investment management software, and an ethos that fits into its open ecosystem approach under the OMNI infrastructure. It has also been a thought leader in the space and last month the Florida State Board of Administration (FSBA) expanded its mandate with BNY Mellon to include ESG data and analytics.