The International Securities Lending Association (ISLA) has published its white paper titled ‘Framing securities lending for the sustainability era’ in French.
The white paper comes during the lead up to COP26 and to support the upcoming ISLA-led panel session ‘Financial Markets of the Future: Framing Securities Lending for the Sustainability Era’, which is taking place in Paris at the World Pensions Council’s G20 Pensions Dialogue & ESG Summit on 28 October.
Produced jointly by ISLA and law firm Allen & Overy, the paper looks at the role of lending in the transition to a sustainable economy and how ISLA is supporting that process.
In line with the aims of the Capital Markets Union (CMU), securities lending helps create a more resilient economy, which in turn will help the EU deliver on its objectives under the European Green Deal, according to the publication.
The white paper discussed whether practices within capital markets were generating undue short-term pressure in the real economy and suggested, along with the European Securities and Markets Authority (ESMA) and the Federal Reserve Bank of New York, that this was not the case.
It found that short sales do not, in the long term, affect market declines, and that there wasn’t solid evidence to suggest a causal connection between securities lending and undue short-term market pressures.
In supporting the transition to a sustainable economy, ISLA will lead workstreams on the following five-step action plan below, where it will;
- Work with members and industry stakeholders towards the development of a best practice standard on creating a common understanding of ESG objectives
- Work with the membership to update current best practices for recalling securities and to create industry standards around voting in line with good governance principles
- Adapt current best practices that aid transparency to regulators around shareholder disclosure and identification, keeping in line with the regulatory requirements of SRD II
- Work with members and industry stakeholder groups to engage in a feasibility study on how current market practice could be optimised to increase transparency
- Work with its Collateral Management Steering Group, with a mandate from ISLA’s Beneficial Owner Steering Group, to develop high level standards for collateral selection and around the approach to cash re-investment to align with the lender’s ESG objectives
Upon conclusion, ISLA’s white paper reads: “At ISLA we strongly believe that securities lending has an important role to play in both meeting individual market participants’ ESG objectives and in aiding the wider transition of the economy towards Paris-aligned and other sustainable goals. ISLA believes that the industry can support the growing concerns of asset owners around sustainability and coevolve, by helping them achieve liquidity and growth in these markets.”
