ESG investing and securities lending are compatible, RMA survey finds
08 October 2020 Philadelphia
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A survey of 44 leading institutional investors revealed that almost all respondents believe that securities lending activities can coexist with environmental, social, and governance (ESG) principles, according to the Risk Management Association (RMA).
The report also found that securities lending needs to evolve to integrate investors鈥� ESG principles with their securities lending programmes and highlighted opportunities for the industry to help asset owners better understand their options in this arena.
The survey was conducted by the RMA鈥檚 Council on Securities Lending with the aim of identifying best practices and challenges in harmonising ESG goals with securities lending strategies.
A subsequent whitepaper also includes detailed interviews with nine institutional investors and surveyed 44 firms.
Respondents included five of the top-10 global asset managers, two of the top-10 US retirement plans, and two of the top-five global sovereign wealth funds.
The priorities highlighted by the paper include the need for engagement with portfolio companies as a means of expressing ESG principles, the importance of proxy voting, questions concerning participation in the short side of the market, and the benefits of lending to shareholders and other stakeholders.
Ninety-five percent of survey respondents said ESG investing and securities lending can coexist. But only 18 percent always apply ESG principles to their securities lending programmes.
Another 25 percent do so on a case-by-case basis, 18 percent don鈥檛 but are planning to, and 39 percent simply don鈥檛.
In terms of where the industry can improve, the survey found that 55 percent of participants ranked 鈥済reater education about available options鈥� as the top priority when it comes to applying ESG principles to their lending programme.
For example, a lack of timely information about proxy record dates and voting questions complicates the process of recalling stock that is on loan.
When survey participants were asked to name 鈥渕easures that might facilitate the application of ESG principles to their securities lending programme,鈥� 43 percent said that they want more transparency around proxy record dates and questions.
Moreover, only 20 percent of respondents said that there is 鈥渞egular鈥� interaction in their institution between those who manage securities lending and those who manage ESG issues. Another 44 percent responded that interaction occurs 鈥渇rom time to time鈥�.
鈥淩MA is making this paper available at a time when ESG is taking on greater importance in securities lending, which generated $8.66 billion for lenders in 2019 at the same time as serving its customary function of enhancing liquidity, the availability of collateral, and efficiency in the markets,鈥� says Glenn Horner, chair of RMA鈥檚 Council on Securities Lending.
鈥淲ith climate change, diversity, equity, and inclusion efforts, and regulations around data privacy taking on more significance daily, ESG will only become more integral to every institution.鈥�
Fran Garritt, RMA鈥檚 director of securities lending and global markets risk, adds: 鈥淩MA believes that greater transparency and more standardised processes will benefit everyone who uses the securities lending market.
鈥淲e will continue to work with all market participants to ensure the market鈥檚 continuing compatibility with ESG investing, which continues to gain momentum.鈥�
The 鈥�' whitepaper is available to read in full.
The report also found that securities lending needs to evolve to integrate investors鈥� ESG principles with their securities lending programmes and highlighted opportunities for the industry to help asset owners better understand their options in this arena.
The survey was conducted by the RMA鈥檚 Council on Securities Lending with the aim of identifying best practices and challenges in harmonising ESG goals with securities lending strategies.
A subsequent whitepaper also includes detailed interviews with nine institutional investors and surveyed 44 firms.
Respondents included five of the top-10 global asset managers, two of the top-10 US retirement plans, and two of the top-five global sovereign wealth funds.
The priorities highlighted by the paper include the need for engagement with portfolio companies as a means of expressing ESG principles, the importance of proxy voting, questions concerning participation in the short side of the market, and the benefits of lending to shareholders and other stakeholders.
Ninety-five percent of survey respondents said ESG investing and securities lending can coexist. But only 18 percent always apply ESG principles to their securities lending programmes.
Another 25 percent do so on a case-by-case basis, 18 percent don鈥檛 but are planning to, and 39 percent simply don鈥檛.
In terms of where the industry can improve, the survey found that 55 percent of participants ranked 鈥済reater education about available options鈥� as the top priority when it comes to applying ESG principles to their lending programme.
For example, a lack of timely information about proxy record dates and voting questions complicates the process of recalling stock that is on loan.
When survey participants were asked to name 鈥渕easures that might facilitate the application of ESG principles to their securities lending programme,鈥� 43 percent said that they want more transparency around proxy record dates and questions.
Moreover, only 20 percent of respondents said that there is 鈥渞egular鈥� interaction in their institution between those who manage securities lending and those who manage ESG issues. Another 44 percent responded that interaction occurs 鈥渇rom time to time鈥�.
鈥淩MA is making this paper available at a time when ESG is taking on greater importance in securities lending, which generated $8.66 billion for lenders in 2019 at the same time as serving its customary function of enhancing liquidity, the availability of collateral, and efficiency in the markets,鈥� says Glenn Horner, chair of RMA鈥檚 Council on Securities Lending.
鈥淲ith climate change, diversity, equity, and inclusion efforts, and regulations around data privacy taking on more significance daily, ESG will only become more integral to every institution.鈥�
Fran Garritt, RMA鈥檚 director of securities lending and global markets risk, adds: 鈥淩MA believes that greater transparency and more standardised processes will benefit everyone who uses the securities lending market.
鈥淲e will continue to work with all market participants to ensure the market鈥檚 continuing compatibility with ESG investing, which continues to gain momentum.鈥�
The 鈥�' whitepaper is available to read in full.
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