Survey addresses concerns that the two may conflict and finds that evolution is necessary amid changing investor principles
The value of securities lending is well known to short-sellers and lenders as well as for hedging and arbitrage; but how does the demand for ESG principles fit into the practice?
There is work to be done, according to a new survey from the Risk Management Association (RMA), which found that evolution is necessary to integrate investors' ESG principles with their securities lending programs.
Overall, the survey concluded that securities lending and ESG principles can co-exist and highlights an opportunity for the industry to help asset owners better understand their options for managing ESG factors in securities lending.
The survey forms part of a white paper called "Complementary, Not Conflicting: Securities Lending and ESG Investing Coexist."
"This paper shows how this important balance can be achieved – and is being achieved. It also identifies the challenges for the securities lending industry in further integrating ESG factors into securities lending programs,” said Fran Garritt, RMA's Director of Securities Lending and Global Markets Risk. “RMA believes that greater transparency and more standardized processes will benefit everyone who uses the securities lending market. We will continue to work with all market participants to ensure the market's continuing compatibility with ESG investing, which continues to gain momentum."
Key findings
The survey included respondents from five of the top 10 global asset managers, two of the top five sovereign wealth funds, and other institutional investment firms.
It found that:
- Ninety-five percent of survey respondents said ESG investing and securities lending can coexist. But only 18% always apply ESG principles to their securities lending programs. Another 25% do so on a case-by-case basis, 18% don't but are planning to, and 39% simply don't.
- A lack of timely information about proxy record dates and voting questions complicates the process of recalling stock that is on loan. When survey participants were asked to name "measures that might facilitate the application of ESG principles to their securities lending program," 43% said that they want more transparency around proxy record dates and questions.
- Just 20% of respondents said that there is "regular" interaction in their institution between those who manage securities lending and those who manage ESG issues. Another 44% responded that interaction occurs "from time to time."
- Fifty-five percent of participants ranked "greater education about available options" as the top priority when it comes to applying ESG principles to their lending program.
