All stakeholders who participate in securities lending will benefit from a dedicated and recognisable global standard to guide its further evolution

Development of international principles for sustainable securities lending gains global traction

Experts and major organisations have co-created the first international principles that will encourage more concerted efforts towards sustainable securities lending.

Dr Radek Stech from the University of Exeter Law School, has led the development of the framework, called the Principles for Sustainable Securities Lending (PSSL) between 2018 and 2019. Already, the principles have encouraged better practice and more transparent behaviour among stakeholders. He will now recast PSSL as Global PSSL and facilitate further work towards regional technical guidelines.

Securities lending is a distinct finance dynamic that constitutes one of the key mechanisms for market efficiency, integrity and liquidity, with the significant potential to influence the global environmental, social and governance (ESG) credentials of asset owners, banks and hedge funds. All stakeholders who participate in securities lending will benefit from a dedicated and recognisable global standard to guide its further evolution. Dr Stech co-founded the International Securities Lending Association Council for Sustainable Finance (ICSF), which provided an initial home for PSSL.  From August 2020, he will lead on a series of roundtables engaging all key stakeholders with the view to completing the revision in autumn 2020. Among those who have committed to participating in the roundtables are organisations such as Aberdeen Standard Investments, BlackRock, NN Investment Partners, PGGM, Bank of New York Mellon agency lending, eSecLending and associations such as the Canadian Securities Lending Association (CASLA), the US-based Risk Management Association (RMA) and the South African Securities Lending Association (SASLA). 

ICSF, which has recently gained significant prominence in sustainable finance, is the core supporter of the Global PSSL.

The Global PSSL project, funded by the Economic and Social Research Council, part of UK Research and Innovation, will then be applicable globally so organisations follow similar sustainable high level practices on securities lending. It will provide direction for them to work toward more detailed technical guidelines taking into account regional nuances.

Dr Stech, who founded the project and chairs the Council, said: “The coronavirus pandemic in particular has highlighted the varying ways securities lending operates around the world. It highlighted the role of securities lending in ensuring market efficiency and liquidity, and, in turn its role in the economic recovery. This proves that there is a clear need for global Principles that will foster greater consistency on the markets and translate into benefits for the global economy.

“Global economic recovery may be slow, but it must be supported by mature, consistent and evidence-based decisions. Having global principles for sustainable securities lending will contribute to this, and lead to good governance.

“This will help to strengthen regulators’ and investors’ ability to leverage positive outcomes offered by securities lending, and differentiate between pro-market behaviour, aligned with sustainable finance, and negative practices.”

Professor Julia Black, of the London School of Economics and Political Science, added: “It is very encouraging to see Dr Stech’s socio-legal research making such an enormous international impact in securities lending –  an overlooked, yet, tremendously important part of financial markets. Global PSSL provides clear principles for responsible securities lending which can guide the market and stimulate the debates and practices that influence the broader ESG agenda”.

Date: 24 July 2020