2. Inclusion and Diversity

We will work towards the adoption and development of Global PSSL with all stakeholders who demonstrate a commitment to promoting inclusion and diversity – both in the workplace and in their dealings with others. Furthermore, we encourage all market participants to attract talent to their business from all walks of life through initiatives such as the Global PSSL Mentorship Programme.

Impact plan (3 months):

1. Continue engaging with organisations that can demonstrate inclusion and diversity at the heart of their activities.
2. Engage mentors and advance the Global PSSL Mentorship Programme, starting in January 2021.

3. Transparency

We will provide accurate information about our sustainable securities lending activities and, in turn, increase the transparency of the global sustainable finance market.

Market participants recognise the important role of Master Securities Lending Agreements (MSLA) in enhancing transparency in this area. We recognise that MSLAs contain confidential and proprietary clauses but we will advocate a standardisation of key ESG components in adherence with Global PSSL.

We will advocate sustainability in policy and regulatory consultations on securities lending.

Impact plan (3 months):

1. Explore connections between Global PSSL and MSLAs.
2. Explore how MSLAs could be enriched with Global PSSL principles.

4. Collateral

We emphasise that the implementation of this principle can lead to increasing the inherent value of the financial instruments that can, in turn, translate into effective collateral for other obligations and reduces financing costs.

Market participants stress the need for all stakeholders to work towards the minimum requirements in relation to ESG compliant collateral baskets. We endeavour to collaborate on these requirements as we develop Global PSSL. In doing so, we must afford the flexibility to organisations to customise their Global PSSL adherence. We will actively encourage them to collaborate and feedback on the added value of their customisation. This in turn will advance the Global PSSL minimum requirement.

Our priority is to work with all market participants to strengthen the potential for securities lending to direct short-term cash collateral investments into deposits or the temporary purchase of securities, investments or structures that may have environmental, social positive, governance impacts. Examples of positive impacts include: job creation, strengthening environmentally-friendly projects, improving investor perception.

Cash reinvestments should be made in securities that are consistent with the ESG compliant collateral basket at the issuer level.

We recognise that Global PSSL compliant collateral can contribute to positive impacts in emerging markets.

Market participants recognise the need to invest in the current collateral infrastructure to realise the full impact potential.

We stress the need to collaborate with  borrowers so that we can realise the full potential of this principle and ensure market liquidity (minimise disruptions).

Impact plan (3 months):

1. Coordinate, develop/design and issue a minimum standard of ESG compliant collateral basket.
2. Clarify the environmental and social positive impacts of cash reinvestments. Provide more examples of positive impacts.
3. Work towards creating impacts in the emerging markets and share best practice examples through the Global PSSL platform.
4. Assess whether the solutions proposed by Global PSSL can lead to expanding the ESG compliant collateral market.
5. Explore the crossovers with the repo market.
6. Help the market make a considered opinion on the usefulness of green bonds as collateral.

5. Short Selling

Short Selling which conforms to Global PSSL requirements is compatible with sustainable finance, its environmental, social and governance components and positive impact.

We stress that covered short selling is beneficial to financial markets. It is part of the essential market mechanism that facilitates price discovery and liquidity. It also reduces the asymmetry in a market participant’s ability to express an opinion on the value of assets.

We will increase transparency on short selling in the context of the data-driven theme for Global PSSL. In particular, we will work with data providers to examine securities lending activity through the ESG lenses.

Short selling provides an opportunity for market participants to discover poor governance and environmental and social mismanagement. It also enables market participants to express contrarian views that benefit long holders through a more thorough analysis of risk.

Impact plan (3 months):

1. Collaborate with data providers, end users and other stakeholders to clarify the benefits of short selling in the context of sustainable finance.
2. Increase the knowledge base on short selling.
3. Explore the ESG potential of short activism and its connections with long investments.

6. Tax

All market participants recognise that tax authorities play an important role in creating a logical and level playing field in relation to tax in securities lending. We will advocate a consistent approach which emphasises transparency and removes illicit arbitrage as part of Global PSSL efforts.

Market participants require that securities lending programmes must align with the beneficial owner's tax policy. This tax policy should result from an appropriate level of engagement between the beneficial owner and the agent lender and contain a component on securities lending [and align with Global PSSL]. It must  be available to clients of the beneficial owner and to counterparties of the securities lending programme.

Beneficial owners must maintain a clear withholding tax matrix to ensure that they are not disadvantaged to the amount they receive, assuming that the securities had not been on loan.

Securities Lending programmes must comply with local tax rules and all market participants, including tax authorities, and must continue shaping best practice in this regard, in collaboration with Global PSSL.

Impact plan (3 months):

1. Encourage collaboration with the tax authorities. Establish a list of priority organisations. Coordinate best practice with tax authorities and all interested stakeholders.
2. Collaborate with all stakeholders to suggest guidelines on the internal tax policies and engagement between beneficial owners and agent lenders.

7. Voting

All parties have the ability  to recall and/or restrict securities for a certain period from the lending programme. Organisations should coordinate their voting policies internally and recognise their impact on revenue and the interests of the underlying investors.

We recognise the freedom of beneficial owners to formulate and implement their policies on voting in an informed manner, and the need to communicate them clearly to the end user. We acknowledge that there is a need to conduct an impact assessment exercise. This would compare the shareholder’s value of the vote balanced against the opportunity cost that impacts beneficial owners’ commercial interests in the long-term.

All market participants commit to sharing feedback and collaborating with their peers.  This will help to recognise the impact of voting on both market liquidity and the interests of the stock and, in turn, increase transparency.

All participants must have a considered opinion on how to vote and an established internal voting policy that covers securities lending. They should also be able to assess and test their voting decisions against that policy and confirm that they align with Global PSSL.

Global PSSL will explore the costs and benefits of implementing a two tier approach to voting recalls by emphasising potential environmental, social and governance benefits for all market participants.

Impact plan (3 months):

1. Collaborate with all stakeholders to provide guidelines on how voting impacts on revenue and the interests of the underlying investors.
2. Provide best practice on how to develop and implement internal policies on voting in an informed manner. Provide guidelines on impact assessments and testing exercises.
3. Global PSSL to facilitate communication between stakeholders in order to exchange best practices that create impact opportunities.

8. Innovation and Digitalisation

As market participants collaborate to enhance market efficiency through new technologies or routes to market, the importance of Environmental, Social and Governance factors as well as Sustainable Development Goals criteria must be taken into account and be fully documented.

As innovation and digitalisation continues to drive the securities lending market, all participants must remain vigilant of these principles and strive to adopt them in all future securities lending endeavours.

Market participants should make use of technology in enhancing the accessibility of sustainable securities lending.

Impact plan (3 months):

1. Collaborate with all stakeholders to provide guidelines on how to factor in ESG criteria into innovative solutions.
2. Collaborate with all stakeholders to explore the accessibility of sustainable securities lending.

9. Feedback

Global PSSL will encourage all endorsees to share best practices through voluntary feedback with a view to maintaining, updating and putting these Principles into action.

We will maximise impact through this ongoing feedback.

Impact plan (3 months):

1. Continue the engagement through workstreams, consultations and thought leadership.
2. Explore the existing reporting requirements and leverage them for the benefit of Global PSSL.