Global Principles for Sustainable Securities Lending (Global PSSL) has published a draft of its standard on how to strengthen sustainable finance with interconnected collateral for securities lending.
The draft was compiled by Radek Stech, CEO of the Global PSSL and Roy Zimmerhansl, Global PSSL’s strategic advisor.
Once complete, the standard will focus on both the current agenda and future goals for interconnected collateral within securities lending, while recognising the need to increase transparency and maintain liquidity and safety in line with investor criteria.
Several securities lending industry members contributed to the draft as part of a new “Collateral” workstream in 2021.
Global PSSL also asked hedge fund managers to share their thoughts as part of the Global PSSL’s “Short – Long Investments and Environmental, Social, and Governance (ESG)” workstream.
In the draft, Global PSSL said they aim to include “a minimum standard that advances ESG collateral without compromising safety and liquidity”, which they said “requires a pragmatic and step-by step approach to collateral that can be taken initially by organisations that wish to show leadership in this field.”
However, Stech and Zimmerhansl indicate that the standard “will not presume to change individuals’ unique business models or to standardise their various forms of collateral management. Rather, it offers a roadmap for people to align their current working practices with their ESG ambitions.”
The Global PSSL’s future goals relating to ESG were influenced by Stech's research into green bonds and project finance.
The release of the draft follows several meetings with contributions made by beneficial owners, custodian banks, tri-party agents and prime brokers.
The draft has also been shared as part of a broader review with Global PSSL contributors and regulators in Africa, Australia, the UK and the US.
The consultation period for the standard will run until 15 September 2021. Global PSSL says it welcomes feedback from all interested parties. The formal issue will be published following this peer review.
In a joint statement, Radek Stech and Roy Zimmerhansl said: “By strategically aligning securities lending collateral with ESG, the stakeholders will enhance broader sustainable finance agenda and reap long-term rewards.”
They added: “This standard encourages this forward-looking alignment by emphasising current practices and outlining pathways to more interconnected and ambitious future capacities. Such a progressive, step-by-step approach will increase transparency while assuring safety and liquidity.”
Global PSSL receives funding from the Economic and Social Research Council, part of UK Research and Innovation, through Stech’s “Sustainable Finance – Law – Stakeholders” network.
