Asian investors are prioritising voting rights and achieving greater visibility over their lending chain, according to the Pan Asia Securities Lending Association latest ESG market consultation.
The trade body has released the results of its market review, done in partnership with AsianInvestor, on how environmental, social and governance (ESG) considerations should be incorporated into securities lending programmes. Findings show that 81 percent of the more than 150 150 senior industry professionals questioned believe exercising an investor’s right to vote is the most important ESG factor, alongside gaining more visibility over the participants in their lending chain.
The survey centres on five areas identified by PASLA in which securities lending and ESG considerations intersect, these included: participation in the short side of the market, collateral, cash reinvestment and rehypothecation, transparency in the lending chain, different tax liabilities and exercising voting rights.
Nearly three-quarters of respondents agree that these factors were the key points of contact between securities lending and ESG principles. With this endorsement, PASLA says it will build its framework by creating standardised ESG options in these areas for lenders to choose from.
The new PASLA framework for aligning securities lending with institutional ESG commitments is set to be released in early 2021.
When asked about facilitating short selling by lending securities, 85 percent of asset owners and managers think some controls should be in place to address concerns over the compatibility of ESG principles with securities lending.
Thirty-seven percent of respondents also say that ESG best practice would require restrictions to lending securities in which the beneficial owner has a significant shareholding.
More than 100 of the individuals surveyed during October and November represented a total of 65 asset owners and investment management firms across the Asian region. Among the investor respondents, about a third were currently active in securities lending in the region.
As well as the survey, the consultation included a closed-door roundtable involving four investors and a further five one-on-one interviews with asset owners and managers.
Paul Solway, PASLA’s communications officer, says: “It is clear from this consultation that Asian investors want to take a more proactive approach to manage ESG factors in their securities lending programmes. Some of the issues identified, such as exercising voting rights, can be addressed straight away.
“For some other ambitions, especially ensuring an asset owner has visibility over its entire lending chain, the industry will need to work together over the long-term to develop the technology necessary to achieve this. We hear the statement of intent loud and clear, and will ensure these views are reflected in the framework we are developing as the next stage of our consultation.”
