Asset managers lending to short sellers compatible with ESG investing: Survey

On Thursday, an industry body stated, asset managers lending out of their securities is compliant and compatible with principles government investment on environmental, social and governance (ESG). It is now in the process of drawing up guidelines.

A survey by Pan Asia Securities Lending Association (PASLA) concluded that those who own shares or other securities can lend them for a fee to other investors who wish to hold them temporarily to short the stock, or for other purposes, including hedging is compliant with ESG principles.

Although the move is highly profitable for the lenders, opponents of the practice says, it is non-compliant with ESG investing – a trend that accounts for trillions of dollars worth in investments.

According to the results of the survey conducted by PASLA, 89% of its respondents felt that securities lending could be compatible with ESG principles, provided certain measures were put in place.

“There are three core topics that normally come up: proxy voting, collateral and transparency,” said Stuart Jones, PASLA’s chairman.

These three bases covers the means and the methods of how asset owners should have their shares returned to them to allow them to vote at AGMs, “what collateral they were given in exchange for the shares – in case these did not meet asset owners’ ESG requirements – and whether borrowers of shares could lend them on further without informing the owner,” said Jones.

He went on to add, “A lot of people – but certainly not all- have not considered what ESG needs to look like when lending securities”.

PASLA is working with the industry to create a set of ESG principles.

In 2019, the world’s largest pension fund, Japan’s Government Pension Investment Fund, stopped lending of its overseas shares for short-selling terming the practice as being inconsistent with its responsibilities as a long-term investor.

According to IHS Markit data, asset managers garnered $10 billion plus revenues in 2019 from charging fees to borrowers over their securities.

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