ISLA eyes ESG principles formation for securities lending through new council

The council aims to introduce wide-ranging solutions for sustainable securities lending through the introduction of new principles.

By Jonathan Watkins

The International Securities Lending Association (ISLA) has formed a Council for Sustainable Finance (ICSF) in a bid to introduce and promote environmental, social and governance (ESG), and Sustainable Development Goals (SDG) principles.

The ICSF will launch in the first quarter next year and be chaired by Dr Radek Stech, council chair and founder of the Sustainable Finance – the Law – Stakeholders (SFLS) Network at Exeter Law School.

According to the association, the ICSF aims to introduce wide-ranging solutions for sustainable securities lending through the introduction of new principles. Named the ‘Principles for Sustainable Securities Lending’ (PSSL), they will include new voluntary sustainable finance mechanism for securities lending.

The launch of the new council comes two weeks after Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, announced it would suspend its securities lending programme for foreign equity assets after deeming the practice as ‘lacking transparency’, largely due to the fact that when a stock is on loan, the voting rights go with it.

However, numerous other beneficial owners, representing pension fund and global asset managers, have initiated these principles and ISLA said the investors “are committed to their successful implementation”.

The percentage of asset owners and managers incorporating ESG strategies and aligning them with the UN’s SDGs has significantly increased, and research in April 2019 supported this. The survey from BNP Paribas Securities Services showed that over 65% of respondents are aligning their investment framework with the UN goals which are providing a “new compass” for ethical investing.

In addition, over 90% of asset owners and managers believe more than 25% of their funds will be allocated towards ESG by 2021.

“I believe ESG will be an increasingly constant thread that will link much of what we do,” said Andrew Dyson, CEO, ISLA.

“Therefore, I see this initiative as an important building block in our broader work across the industry to align the needs of the ESG investment ethos with our markets.”

ISLA added that both the principles and the structure of the council are highly adaptable and have been designed to encourage open communication between all stakeholders.

 “A recurring theme, from the dozens of interviews and working groups I have held, is that industry is crying out for a strong and practicable set of principles,” said Dr Stech.

“Principles that allow for growth but recognise that sustainability is of equal importance.”