PASLA sets out roadmap for standardising ESG in APAC
21 May 2020 Hong Kong
Image: metamorworks/Shutterstock.com
The Pan-Asia Securities Lending Association (PASLA) is set to launch a consultation as the first step in creating a set of standardised environmental, social and governance (ESG) principles for securities lending specifically for the Asia Pacific (APAC) region.
The association aims to demonstrate the industry’s commitment to integrating ESG considerations with securities lending, and build on the work of the International Securities Lending Association’s (ISLA) Council for Sustainable Finance, which is also crafting a set of Principles for Sustainable Securities Lending.
In its recently-published a second position paper, the council called for global consistency in ESG principles, reinforced by enhanced cooperation and communication between industry participants.
The focus on incorporating ESG into securities lending programmes by ISLA, PASLA and others, has in large part been driven by some sustainability-minded beneficial owners questioning whether their dislike of short selling subsequently makes their securities lending programmes incompatible with ESG.
Most notable, Japan’s Government Pension Investment Fund, the world’s largest pension fund, partially closed its securities lending programme in December 2019 due to concerns around how the assets it was lending were being used.
However, APAC’s beneficial owners appear to be embracing securities lending as a survey by EY, conducted on PASLA’s behalf in March, revealed that 89 percent of respondents saw ESG and securities lending as compatible.
The survey questioned 29 industry participants among both PASLA members and other industry participants. Almost 50 percent of respondents were either banks or broker dealers and more than 75 percent are based in APAC.
The survey focused on their perceptions of ESG in the context of securities lending and found that although largely positive, “most respondents also agreed on the need to implement some level of control and accountability throughout the industry’s value chain to ensure ESG compliance where this is required”.
As a further step in its mission, PASLA says it recognised that ESG is understood differently by different institutions in different regions and that it will “step up its efforts” to engage with APAC asset owners about how the industry can help them achieve controls over securities lending that are consistent with their ESG commitments.
“ESG investment has moved into the mainstream and will continue its momentum,” says Stuart Jones, chairman of PASLA. “It’s vital for the industry to be transparent about how it addresses ESG issues.
“We want to proactively shape standards to ensure that sustainable investing and securities lending continue to complement each other. It’s also the industry’s responsibility to listen to those who have ESG-related concerns about securities lending and explore ways of addressing those.”
Jones notes that despite regional differences, ESG issues typically focus on exercising voting rights in annual general meetings and extraordinary general meeting, ensuring that collateral posted with lenders meets their ESG standards and transparency about who borrows securities and how they use them.
These issues, he says, can be managed through the design of securities lending programmes and the use of technology for monitoring.
“But, we need to ensure there are common ESG-related values for participants in the Asian securities lending industry,” he adds. “For example, standardised approaches could include a set of templates for ESG variables in securities lending programmes”.
The association aims to demonstrate the industry’s commitment to integrating ESG considerations with securities lending, and build on the work of the International Securities Lending Association’s (ISLA) Council for Sustainable Finance, which is also crafting a set of Principles for Sustainable Securities Lending.
In its recently-published a second position paper, the council called for global consistency in ESG principles, reinforced by enhanced cooperation and communication between industry participants.
The focus on incorporating ESG into securities lending programmes by ISLA, PASLA and others, has in large part been driven by some sustainability-minded beneficial owners questioning whether their dislike of short selling subsequently makes their securities lending programmes incompatible with ESG.
Most notable, Japan’s Government Pension Investment Fund, the world’s largest pension fund, partially closed its securities lending programme in December 2019 due to concerns around how the assets it was lending were being used.
However, APAC’s beneficial owners appear to be embracing securities lending as a survey by EY, conducted on PASLA’s behalf in March, revealed that 89 percent of respondents saw ESG and securities lending as compatible.
The survey questioned 29 industry participants among both PASLA members and other industry participants. Almost 50 percent of respondents were either banks or broker dealers and more than 75 percent are based in APAC.
The survey focused on their perceptions of ESG in the context of securities lending and found that although largely positive, “most respondents also agreed on the need to implement some level of control and accountability throughout the industry’s value chain to ensure ESG compliance where this is required”.
As a further step in its mission, PASLA says it recognised that ESG is understood differently by different institutions in different regions and that it will “step up its efforts” to engage with APAC asset owners about how the industry can help them achieve controls over securities lending that are consistent with their ESG commitments.
“ESG investment has moved into the mainstream and will continue its momentum,” says Stuart Jones, chairman of PASLA. “It’s vital for the industry to be transparent about how it addresses ESG issues.
“We want to proactively shape standards to ensure that sustainable investing and securities lending continue to complement each other. It’s also the industry’s responsibility to listen to those who have ESG-related concerns about securities lending and explore ways of addressing those.”
Jones notes that despite regional differences, ESG issues typically focus on exercising voting rights in annual general meetings and extraordinary general meeting, ensuring that collateral posted with lenders meets their ESG standards and transparency about who borrows securities and how they use them.
These issues, he says, can be managed through the design of securities lending programmes and the use of technology for monitoring.
“But, we need to ensure there are common ESG-related values for participants in the Asian securities lending industry,” he adds. “For example, standardised approaches could include a set of templates for ESG variables in securities lending programmes”.
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