Berita 24 English - Asset managers who lend their securities should develop policies incorporating environmental, social, and governance (E...
Berita 24 English - Asset managers who lend their securities should develop policies incorporating environmental, social, and governance (ESG) principles regarding how they recall shares for voting and the collateral they accept, industry groups said on Thursday.
Owners of shares or other securities can lend them to other investors for a fee to hold them temporarily for purposes such as shorting the stock or hedging.
While the practice is frequently extremely profitable for lenders, critics argue that it may conflict with ESG investing, a growing trend that now accounts for tens of trillions of dollars in investment.
Concerns include the possibility that asset owners who have lent their shares will be unable to vote on policies that align with their ESG objectives at company general meetings and accept securities that do not align with their ESG standards as collateral for securities lending.
Securities lenders should implement a recall policy based on ESG considerations in their proxy voting framework, defining the types of resolutions on which they wish to vote by company and issue, the Pan Asia Securities Lending Association (PASLA) and the Risk Management Association stated in a series of guidelines released on Thursday.
Additionally, they should determine the type of collateral they will accept and consider applying the same standards to collateral as they do to investments, the guidelines added.
"All investment products must incorporate ESG considerations," said Paul Solway, a PASLA director.
While restricting how shares can be lent would have an effect on the ease with which borrowers can be found, and the returns asset managers can earn from lending, "it is about striking a balance and identifying commercially viable options," he said.
Japan's Government Pension Investment Fund, the world's largest pension fund, ceased lending its overseas shares for short-selling in late 2019, citing concerns that the practice violated its long-term investment responsibilities.
According to a PASLA survey conducted last year, market participants believed securities lending was compatible with ESG investing.
