Menu
Banking Exchange Magazine Logo
Menu

How Stock Lending Can Work with SRI Principles

Loaning securities must evolve to reflect the needs of investors, says the Risk Management Association

  • |
  • Written by  Banking Exchange staff
  • |
  • Comments:   DISQUS_COMMENTS
How Stock Lending Can Work with SRI Principles

Securities lending can “coexist” with socially responsible investment (SRI) strategies, according to a new survey from the Risk Management Association (RMA).

Asset managers and other investors often engage in the lending of stocks or bonds to help others enact short selling, hedging or arbitrage strategies.

The process involves the owner of the stock temporarily exchanging it for an agreed amount of collateral. The lender usually earns a small fee while retaining long-term ownership of the security. According to DataLend, securities lending generated $8.7 billion of revenues in 2019.

However, proponents of responsible investment have opposed the practice of securities lending as the owner of the stock surrenders voting rights while it is on loan, undermining their ability to engage with companies.

The RMA’s survey of 44 asset managers and other investors found that the vast majority (95%) believed that securities lending activities could “coexist with environmental, social, and governance (ESG) principles”.

But only 18% of respondents said they always applied ESG principles to their lending programs, with 25% doing so on a “case by case” basis. More than a third (39%) said they do not apply any ESG or SRI principles.

The RMA said survey respondents cited a “lack of timely information about proxy record dates and voting questions” as complicating the process of recalling stock to exercise their voting rights.

The association’s report highlighted that lenders always had the right to recall stock in order to vote on material issues. In addition, asset managers could always restrict lending on certain positions or keep lists of securities that they do not want to lend for SRI reasons.

“Our research shows that securities lending and ESG investing can be complementary, not conflicting,” said Fran Garritt, the RMA’s director of securities lending and global markets risk.

“This paper shows how this important balance can be achieved – and is being achieved. It also identifies the challenges for the securities lending industry in further integrating ESG factors into securities lending programs.

“The RMA believes that greater transparency and more standardized processes will benefit everyone who uses the securities lending market. We will continue to work with all market participants to ensure the market’s continuing compatibility with ESG investing, which continues to gain momentum.”

The full report is available here.

back to top

Sections

About Us

Connect With Us

Resources

Webinar: From KYC to IDV

How three leading banks are utilizing cutting-edge
digital tools to onboard, win, and wow customers

Time/Date: June 23, 2021 11:00 a.m. ET

Digital adoption, already moving at warp speed, accelerated seven years into the future during the COVID-19 pandemic. As the number of bank branches continues to fall, with at least one study predicting all branches will disappear by 2034 (Fox Business) and foot traffic declining (Vox), today’s most innovative banks are charting a new, digital-first path to win over customers while increasing security, meeting KYC compliance requirements, and winning customers to drive revenue.

In this webinar, you’ll hear from John Baird, Founder & CEO of Vouched, Tyler Crawford, COO of Bankers Healthcare Group, Anand Sathiyamurthy, CPO of Flagstar Bank and Daniel Sheehan, Chairman & CEO of Professional Bank as they describe their vision for digital transformation and how customer expectations are changing to digital first. They’ll also explore how fostering an innovation mindset creates new ways to tackle complex KYC problems and allows them to quickly compete in new markets and win customers.

REGISTER NOW!

This webinar is brought to you by:
Vouched Logo