PASLA/EY survey reveals growth of ESG in APAC securities lending
26 May 2020 Hong Kong
Image: city hunter/shutterstock.com
The Pan Asia Â鶹´«Ã½ Lending Association (PASLA) has published the key findings of a survey conducted by EY on its behalf which revealed the role that environmental, social and governance (ESG) principles have been incorporated into securities lending programmes in Asia Pacific (APAC).
The survey questioned 29 market participants, the majority of which are PASLA members, along with other industry participants.
Of the respondents, 75 percent of participants are based in APAC, while half of them represented banks or broker deals. More than 60 percent were from organisations with over 10,000 employees.
Among the key findings was the uncovering of a clear trend of ESG becoming a key consideration in APAC securities lending practices but also that investment in ESG and its incorporation into programmes is still catching up with the importance participants place upon it.
Primarily, the vast majority of respondents (89 percent) say securities lending can be compatible with ESG principles, while more than half (57 percent) consider ESG to be ‘very relevant’ or ‘relevant’ to the securities lending industry.
In contrast, however, only 14 percent of respondents have a dedicated ESG team or specialist in their securities lending business. A further 18 percent of respondents said they were planning to create a role for such a specialist in the near future.
This lack of ESG expertise in securities lending programmes may explain why almost half of the respondents do not currently consider ESG factors in their securities lending, financing and collateral programmes. A further 37 percent said they do consider ESG in all three of these programmes, while 19 percent apply ESG in at least one of those asset classes.
Elsewhere, and perhaps reassuringly, the survey also revealed that 81 percent of those questioned confirmed they had not considered suspending their programmes due to ESG considerations.
This question comes after Japan’s Government Pension Investment Fund, the world’s largest pension fund, partially closed its securities lending programme in due to ESG-compliance concerns. It is so far the only fund to withdraw from lending on these grounds.
Of those that said they had considered withdrawing from lending, 40 percent said that suspending due to non-compliance should only be on a case-by-case basis, while another 40 percent agreed that any event of non-compliance that puts the firm at risk with the press should be avoided at all costs.
In terms of PASLA’s next steps, the majority of respondents said the industry body should be working with other organisations and aim to play a bigger role in educating investors and larger institutions on the benefits of securities lending and its compatibility with ESG.
To further this aim, PASLA has laid out plans to coordinate the creation of for the APAC securities lending markets.
The industry body aims to build upon the work of the International Â鶹´«Ã½ Lending Association's Council for Sustainable Finance, which is crafting a set of Principles for Sustainable Â鶹´«Ã½ Lending to promote global harmonisation of ESG standards.
As a first step, PASLA is set to launch a consultation with the aim of completing the initiative and issuing the principles within this year.
The survey questioned 29 market participants, the majority of which are PASLA members, along with other industry participants.
Of the respondents, 75 percent of participants are based in APAC, while half of them represented banks or broker deals. More than 60 percent were from organisations with over 10,000 employees.
Among the key findings was the uncovering of a clear trend of ESG becoming a key consideration in APAC securities lending practices but also that investment in ESG and its incorporation into programmes is still catching up with the importance participants place upon it.
Primarily, the vast majority of respondents (89 percent) say securities lending can be compatible with ESG principles, while more than half (57 percent) consider ESG to be ‘very relevant’ or ‘relevant’ to the securities lending industry.
In contrast, however, only 14 percent of respondents have a dedicated ESG team or specialist in their securities lending business. A further 18 percent of respondents said they were planning to create a role for such a specialist in the near future.
This lack of ESG expertise in securities lending programmes may explain why almost half of the respondents do not currently consider ESG factors in their securities lending, financing and collateral programmes. A further 37 percent said they do consider ESG in all three of these programmes, while 19 percent apply ESG in at least one of those asset classes.
Elsewhere, and perhaps reassuringly, the survey also revealed that 81 percent of those questioned confirmed they had not considered suspending their programmes due to ESG considerations.
This question comes after Japan’s Government Pension Investment Fund, the world’s largest pension fund, partially closed its securities lending programme in due to ESG-compliance concerns. It is so far the only fund to withdraw from lending on these grounds.
Of those that said they had considered withdrawing from lending, 40 percent said that suspending due to non-compliance should only be on a case-by-case basis, while another 40 percent agreed that any event of non-compliance that puts the firm at risk with the press should be avoided at all costs.
In terms of PASLA’s next steps, the majority of respondents said the industry body should be working with other organisations and aim to play a bigger role in educating investors and larger institutions on the benefits of securities lending and its compatibility with ESG.
To further this aim, PASLA has laid out plans to coordinate the creation of for the APAC securities lending markets.
The industry body aims to build upon the work of the International Â鶹´«Ã½ Lending Association's Council for Sustainable Finance, which is crafting a set of Principles for Sustainable Â鶹´«Ã½ Lending to promote global harmonisation of ESG standards.
As a first step, PASLA is set to launch a consultation with the aim of completing the initiative and issuing the principles within this year.
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