ISLA forms Council for Sustainable Finance
17 December 2019 London
Image: Shutterstock
The International Securities Lending Association (ISLA) has formed a Council for Sustainable Finance (ICSF), amid wide-spread market debate around the compatibility of asset managers’ lending programmes and the growing trend of socially-conscious financing.
The council will be chaired by Radek Stech, who is also council chair and founder of the Sustainable Finance, the Law, Stakeholders (SFLS) network at Exeter Law School.
It will sit for the first time in Q1 2020 and will operate for a five-year term. ISLA was not immediately able to provide further details on other council members.
Primarily, ICSF aims to introduce “wide-ranging solutions for sustainable securities lending” through the introduction of a set of principles for sustainable securities lending (PSSL).
According to ISLA, the PSSL is a voluntary rules framework aimed at promoting environmental, social and governance (ESG), sustainable development goals, and long-term thinking into securities lending activities.
Of his new role, Stech said: “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. Principles that allow for growth but recognise that sustainability is of equal importance.”
The PSSL is currently undergoing formal approval and is the result of an industry working group with active contributions from several beneficial owners.
The association confirmed that numerous beneficial owners, representing pension funds and global asset managers, have already initiated these principles.
ISLA CEO Andrew Dyson commented: “I believe ESG will be an increasingly constant thread that will link much of what we do.
“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.”
News of the council’s formation, which has been 16-months in the making, comes weeks after the world’s largest pension fund withdrew from lending its foreign equity portfolio following internal concerns that its lent assets could be used for purposes counter to its ESG-related policies.
The withdrawal of Japan’s Government Pension Investment Fund (GPIF) from lending sparked furious debate across financial markets, and drew in many prominent outside observers, regarding the business and ethical case for lending.
Since the initial announcement, the chief investment officer of GPIF, Hiro Mizuno, told the Financial Times that he is aware of several other large asset managers that have been spurred to re-evaluate the appropriateness of their lending programme from a governance point of view.
Mizuno indicated that his own concerns stemmed from the lack of transparency around who the end borrower was and the lender’s inability to ensure its assets would not be used for activities it might disagree with, including short selling or influencing corporate actions, such as voting.
Responding to GPIF’s announcement at the time, ISLA’s Dyson sought to assuage GPIF’s and other asset managers’ worries, stating: “In its simplest form, short selling is a platform for an investor to express sentiment either in a stock or an index, and as such may be no different to an index manager going over or underweight the index that they are tracking.”
The council will be chaired by Radek Stech, who is also council chair and founder of the Sustainable Finance, the Law, Stakeholders (SFLS) network at Exeter Law School.
It will sit for the first time in Q1 2020 and will operate for a five-year term. ISLA was not immediately able to provide further details on other council members.
Primarily, ICSF aims to introduce “wide-ranging solutions for sustainable securities lending” through the introduction of a set of principles for sustainable securities lending (PSSL).
According to ISLA, the PSSL is a voluntary rules framework aimed at promoting environmental, social and governance (ESG), sustainable development goals, and long-term thinking into securities lending activities.
Of his new role, Stech said: “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. Principles that allow for growth but recognise that sustainability is of equal importance.”
The PSSL is currently undergoing formal approval and is the result of an industry working group with active contributions from several beneficial owners.
The association confirmed that numerous beneficial owners, representing pension funds and global asset managers, have already initiated these principles.
ISLA CEO Andrew Dyson commented: “I believe ESG will be an increasingly constant thread that will link much of what we do.
“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.”
News of the council’s formation, which has been 16-months in the making, comes weeks after the world’s largest pension fund withdrew from lending its foreign equity portfolio following internal concerns that its lent assets could be used for purposes counter to its ESG-related policies.
The withdrawal of Japan’s Government Pension Investment Fund (GPIF) from lending sparked furious debate across financial markets, and drew in many prominent outside observers, regarding the business and ethical case for lending.
Since the initial announcement, the chief investment officer of GPIF, Hiro Mizuno, told the Financial Times that he is aware of several other large asset managers that have been spurred to re-evaluate the appropriateness of their lending programme from a governance point of view.
Mizuno indicated that his own concerns stemmed from the lack of transparency around who the end borrower was and the lender’s inability to ensure its assets would not be used for activities it might disagree with, including short selling or influencing corporate actions, such as voting.
Responding to GPIF’s announcement at the time, ISLA’s Dyson sought to assuage GPIF’s and other asset managers’ worries, stating: “In its simplest form, short selling is a platform for an investor to express sentiment either in a stock or an index, and as such may be no different to an index manager going over or underweight the index that they are tracking.”
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