ISLA: Firms need to act on ESG initiatives
19 June 2019 Madrid
Image: Shutterstock
Firms within the securities finance industry need to act on environmental, social and governance (ESG), according to a panel at the International Securities Lending Association conference in Madrid.
When asked if ESG is compatible with securities lending, the panel collectively agreed that it is, however, it needs to evolve.
One panellist explained that in the past it may have been neglected because of a lack of understanding, but times have changed.
During the panel the audience was asked if they thought the industry was doing enough to incorporate sustainability principles. More than half, 70 percent, thought that the industry is not doing enough and should be doing more.
Elsewhere, 17 percent thought that the industry is doing enough, while 13 percent thought that the industry is not doing enough but also should not be doing any more towards sustainability principles.
One speaker suggested that the increased focus on ESG investing is “raising the bar” for asset managers.
The speaker explained: “It is forcing more active ownership by fund managers and increasing the focus on engagement with companies. There has also been some question among certain ESG fund managers of whether securities lending and ESG can be combined.”
Another panellist noted that a common perception of securities lending is it facilitates shorting, and shorting is bad because it undermines the value of long-only portfolios. However, the speaker explained the notion that securities lending is incompatible with ESG because it facilitates short selling is a “misconception”.
The audience were also asked if regulation should play a greater role to change governance practices within the securities lending industry.
Some 76 percent thought that a combination of regulation and market-led initiatives is the best way to address changes governance practices moving forward. However, 24 percent thought that this should be a market-led initiative.
When asked if ESG is compatible with securities lending, the panel collectively agreed that it is, however, it needs to evolve.
One panellist explained that in the past it may have been neglected because of a lack of understanding, but times have changed.
During the panel the audience was asked if they thought the industry was doing enough to incorporate sustainability principles. More than half, 70 percent, thought that the industry is not doing enough and should be doing more.
Elsewhere, 17 percent thought that the industry is doing enough, while 13 percent thought that the industry is not doing enough but also should not be doing any more towards sustainability principles.
One speaker suggested that the increased focus on ESG investing is “raising the bar” for asset managers.
The speaker explained: “It is forcing more active ownership by fund managers and increasing the focus on engagement with companies. There has also been some question among certain ESG fund managers of whether securities lending and ESG can be combined.”
Another panellist noted that a common perception of securities lending is it facilitates shorting, and shorting is bad because it undermines the value of long-only portfolios. However, the speaker explained the notion that securities lending is incompatible with ESG because it facilitates short selling is a “misconception”.
The audience were also asked if regulation should play a greater role to change governance practices within the securities lending industry.
Some 76 percent thought that a combination of regulation and market-led initiatives is the best way to address changes governance practices moving forward. However, 24 percent thought that this should be a market-led initiative.
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