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As environmental, social and governance factors become ingrained on investment
decisions, a landmark move by a Japanese pension fund has sparked an industry-
wide debate over sustainability and securities lending, writes Joe Parsons.
esponsible
investing and environmental, social and
governance (ESG) factors are high on
the agenda of the world’s largest asset
managers, pension funds and other
institutional investors alike. Firms are
increasingly looking to integrate ESG into
investment strategies, driven by both their
own sustainability goals and also demands
from their end clients. In 2019, ESG
mutual funds and exchange traded funds
(ETF) raked in $20.6 billion of total new
assets according to Morningstar, almost
four times as much as 2018.
While ESG is becoming a mainstream
for core investment strategies, we are
at worrying crossroads when it comes
to securities lending programmes. The
lending of securities has become a huge
business for asset managers and beneficial
owners and provides an important source
of revenue at a time where they are
increasingly constrained in traditional
markets. For 2019, beneficial owners
achieved gross full-year income of $8.66
billion from securities lending, according
to statistics from DataLend.
Yet at the end of last year, the securities
finance industry was somewhat rocked
by the announcement by Japan’s
Government Pension Investment Fund
(GPIF), one of the world’s largest pension
funds, that it would suspend its $370
billion overseas equity portfolio, from
securities lending after deeming the
practice as ‘lacking transparency’.
Spring 2020
globalcustodian.com
27