ESG: Don’t let SBL become the story, says ISLA CEO
08 March 2021 UK
Image: adobe.stock.com/shaiith
Securities lending should not be at the centre of the environmental, social and governance (ESG) debate as it distorts what the business can offer the broader sustainable agenda, says the CEO of the International Securities Lending Association (ISLA).
In his latest blog, Andy Dyson argues that securities lending is not a sustainable product “in its own right” and must resist being awkwardly pigeonholed in the context of the incoming Sustainable Finance Disclosure Regulation (SFDR).
“Whilst not wanting to underplay the importance of our markets, securities lending has itself become the story,” he writes. “I would argue that this is not the right way to view the challenges we face at this time, or as we grapple with the increasingly complex array of regulation and policy guidance in this area.”
Dyson notes that even with SFDR coming into effect on 10 March the market will still lack satisfactory definitions of various aspects of ESG. This ambiguity has led some institutions to tie themselves in knots trying to comply with the vague level one text, with some stakeholders classifying their programmes as an ESG product, while others are withdrawing from the securities lending market altogether.
Both schools of thought are attempting to avoid falling foul of this new form of principles-based rules as they develop.
Dyson continues: “The absence of any credible definitions from the regulatory community does not help this debate, and indeed I have seen some various institutions attempting to comply with regulation, possibly inadvertently classifying securities lending as a sustainable product.
“I am not sure it is wise, at this stage, to make assumptions, but rather proactively engage with regulatory authorities to aid their understanding of the product.”
He suggests the market should consider “the role that securities lending can play in the sustainable value chain”.
“If we look at lending in that way, we may conclude that it is not a sustainable product in its own right, but crucially, it can support those institutional investors who do have those first-order ESG obligations,” he concludes.
At the same time, Dyson argues that to suggest ESG and securities lending are incompatible would “fundamentally be missing the point”.
“One of the traditional selling points that underpin the operation of a securities lending programme is that it should not interrupt the day-to-day operation of the institutional investor in key areas such as the purchase and disposal of securities, voting, and wider governance obligations,” he explains.
“In many ways, this is no different for ESG portfolios, and reflects how a well-constructed securities lending program can support the aims and objectives of a particular fund, as well as contributing to a wider holistic market dynamic.”
Now read: SFTR to SFDR: The new, new regulatory frontier
In his latest blog, Andy Dyson argues that securities lending is not a sustainable product “in its own right” and must resist being awkwardly pigeonholed in the context of the incoming Sustainable Finance Disclosure Regulation (SFDR).
“Whilst not wanting to underplay the importance of our markets, securities lending has itself become the story,” he writes. “I would argue that this is not the right way to view the challenges we face at this time, or as we grapple with the increasingly complex array of regulation and policy guidance in this area.”
Dyson notes that even with SFDR coming into effect on 10 March the market will still lack satisfactory definitions of various aspects of ESG. This ambiguity has led some institutions to tie themselves in knots trying to comply with the vague level one text, with some stakeholders classifying their programmes as an ESG product, while others are withdrawing from the securities lending market altogether.
Both schools of thought are attempting to avoid falling foul of this new form of principles-based rules as they develop.
Dyson continues: “The absence of any credible definitions from the regulatory community does not help this debate, and indeed I have seen some various institutions attempting to comply with regulation, possibly inadvertently classifying securities lending as a sustainable product.
“I am not sure it is wise, at this stage, to make assumptions, but rather proactively engage with regulatory authorities to aid their understanding of the product.”
He suggests the market should consider “the role that securities lending can play in the sustainable value chain”.
“If we look at lending in that way, we may conclude that it is not a sustainable product in its own right, but crucially, it can support those institutional investors who do have those first-order ESG obligations,” he concludes.
At the same time, Dyson argues that to suggest ESG and securities lending are incompatible would “fundamentally be missing the point”.
“One of the traditional selling points that underpin the operation of a securities lending programme is that it should not interrupt the day-to-day operation of the institutional investor in key areas such as the purchase and disposal of securities, voting, and wider governance obligations,” he explains.
“In many ways, this is no different for ESG portfolios, and reflects how a well-constructed securities lending program can support the aims and objectives of a particular fund, as well as contributing to a wider holistic market dynamic.”
Now read: SFTR to SFDR: The new, new regulatory frontier
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