Integrating ESG Considerations Into Securities Lending

Almost 50 years ago, two anti-war United Methodist ministers wanted to ensure that church dollars were not being invested in companies that were supporting the Vietnam War with production of weapons like Napalm. They eventually founded Pax World, perhaps the world’s first fund with an explicit goal of helping investors align capital allocation with their social values. While the mutual fund Pax Sustainable Allocation Fund still exists today, it is now joined by hundreds of other sustainable funds.

The proliferation of environmental, social and governance (ESG) investing over the last decade has given rise to a significant amount of ESG data and wide ranging, competing frameworks. As regulations have been slow to adapt, investors must navigate the space without clear guidance. Specifically, in the securities lending space, asset owners and investment managers do not have a clear framework on how best to leverage ESG data to incorporate sustainable objectives into lending programs. This report, commissioned by the RMA Financial Technology and Automation Committee (FTAC) and authored by State Street Associates (SSA), takes an academic approach to provide a holistic understanding of the ESG data landscape, which we build upon to propose frameworks for asset owners and agent lenders to integrate ESG into lending practices.  

Click here to download the White Paper

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