ESG Funds in Securities Lending: A Statistical and Program Analysis
Finadium
June 2019
Environmental, social and governance (ESG) investment funds are on the rise, and with them the importance of these funds in securities lending. Using newly collected data, we document the securities lending returns of ESG funds and how they are similar or dissimilar from non-ESG funds in the lending market.
The report finds that ESG funds can safely participate in securities lending, but should take care to manage the process both upstream and downstream to ensure that ESG principles are maintained throughout the program. This requires establishing procedures that document the fund’s decisions to lend or not lend on occasion as well as managing associated collateral activity. A successful ESG securities lending program will require both active fund engagement and support from capable service providers.
This report should be read by institutional investors and fund managers in the ESG space to better understand ESG fund participation in securities lending, including data on engagement and why lending ESGs may be different than other funds. This may translate into expectations of different returns for investors and fund managers. The report may also be useful for service providers in the securities lending market including agent lenders, prime brokers and technology vendors.
Table of Contents
- Executive Summary
- What Makes ESG Different for Securities Lending
- – Methodology
- Evidence from ESG Fund Reporting
- ESG in Program Management
- – Proxy Voting
- – Collateral Management
- Lessons Learned
- About the Authors
- About Finadium LLC