Lending programmes should ‘compliment’ ESG policy
01 April 2019 London
Image: Shutterstock
It is important that lending institutions have a clear environmental, social, and governance (ESG) policy, Andrew Dyson, CEO of the International Securities Lending Association (ISLA) advised in his ‘Reflections of the CEO’.
Dyson recently attended the annual IHS Markit Securities Finance Forum in London, and the Second Arab Capital Markets Conference in Jordan, and noted that the subject of ESG was discussed at some length at both.
He explained that from a lending perspective, we have to think about how we manage the natural tension that can exist around good corporate governance and lending.
According to Dyson, it is also important that their programme compliments ESG policy rather than conflicts with it.
Dyson further explained that as we look towards the new European Commission and Parliament later this year, the broad topic of sustainability will be on the agenda for both.
Elsewhere in the ‘Reflections of the CEO’, Dyson noted that he moderated a panel at the IHS Market Securities Finance Forum on March.
Despite reports of 2018 being a record year for revenues, Dyson found that the mood around 2019 was less positive.
He commented: “There was a sense that the risk-reward ratio is not working for some institutions, with quite simply the feeling that they are not currently recompensed for the risk they run in their programmes.”
“This idea is to an extent supported by some of our own analysis. In our 10th edition of the ISLA Securities Lending Market Report, we noted that prior to the year end, on-loan balances fell in respect of government bonds.”
“One interpretation of this fall could be that as rates to borrow these securities fell, clients who had minimum threshold requirements set within their programmes saw these securities recalled.”
“Within agent banks, the focus appears to be on the development of the product toolbox to accommodate forms of business such as pledge and central clearing that could potentially ease the burden of capital costs within the transaction flow.”
He added: “Finally, from a hedge fund perspective, the first quarter of 2019 appears to have been tough for short side players, with limited opportunities in Europe and where opportunities have been identified, limited if any availability of the stock from lending pools.”
Dyson recently attended the annual IHS Markit Securities Finance Forum in London, and the Second Arab Capital Markets Conference in Jordan, and noted that the subject of ESG was discussed at some length at both.
He explained that from a lending perspective, we have to think about how we manage the natural tension that can exist around good corporate governance and lending.
According to Dyson, it is also important that their programme compliments ESG policy rather than conflicts with it.
Dyson further explained that as we look towards the new European Commission and Parliament later this year, the broad topic of sustainability will be on the agenda for both.
Elsewhere in the ‘Reflections of the CEO’, Dyson noted that he moderated a panel at the IHS Market Securities Finance Forum on March.
Despite reports of 2018 being a record year for revenues, Dyson found that the mood around 2019 was less positive.
He commented: “There was a sense that the risk-reward ratio is not working for some institutions, with quite simply the feeling that they are not currently recompensed for the risk they run in their programmes.”
“This idea is to an extent supported by some of our own analysis. In our 10th edition of the ISLA Securities Lending Market Report, we noted that prior to the year end, on-loan balances fell in respect of government bonds.”
“One interpretation of this fall could be that as rates to borrow these securities fell, clients who had minimum threshold requirements set within their programmes saw these securities recalled.”
“Within agent banks, the focus appears to be on the development of the product toolbox to accommodate forms of business such as pledge and central clearing that could potentially ease the burden of capital costs within the transaction flow.”
He added: “Finally, from a hedge fund perspective, the first quarter of 2019 appears to have been tough for short side players, with limited opportunities in Europe and where opportunities have been identified, limited if any availability of the stock from lending pools.”
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