When financial market participants refer to Sustainable Finance, it is the process of taking into account Environmental, Social and Governance (ESG) considerations when making investment decisions.
Discussions in this arena, will be key to influence sustainable outcomes in the wider economy, as finance will play a crucial role in transitioning investment towards sustainable activities.
From an ISLA perspective, our sustainability work centres primarily on policy objectives of the European Union (EU) and the United Kingdom (UK), taking into account the European Green Deal, as well as UK’s Roadmap to Sustainable Investing – Green Finance.
Other key events include, the international agreement on the adoption of the UN Sustainable Development Goals by 2030, and the Paris Agreement, which was the first global initiative to combat climate related issues.
In 2019, the European Commission released the EU Green Deal, pledging Europe to become the first continent to be carbon neutral by 2050, and presenting an investment plan in 2020 to help focus public and private investment to this cause. In 2020, the UK also outlined proposals of a Ten Point Plan towards a green industrial revolution.
In July 2021, the European Commission (EC) launched the Strategy for Financing the Transition to a Sustainable Economy, building on the 2018 Action Plan, and focuses on development of:
- The EU Taxonomy – a common classification of economic activities substantially contributing to environmental objectives.
- The Sustainable Finance Disclosure Regulation (SFDR) – a comprehensive disclosure regime for financial institutions to provide investors with the information necessary to make sustainable investment choices.
- Investment Tools – EU Ecolabel, EU Climate/ ESG Benchmarks Regulation & European Green Bond Standard.
In November 2021, in the UK, the FCA sought initial views on new Sustainability Disclosure Requirements and Investment Labels for asset managers and FCA-regulated asset owners. The FCA is the first regulator, to specifically ask for industry views on how to integrate sustainability and securities lending.
In December 2020, ISLA created an ESG Steering working group with representation from both buy-side and sell-side members.
ISLA has a separate Corporate Social Responsibility section, which focuses specifically on its own CSR strategy amongst other things.
Implementation Timeline & Key Dates
December 2019i ISLA forms the 'ISLA Council for Sustainable Finance' (ICSF) and publishes the Association’s Manifesto - ‘Securities Lending to Support More Autonomous EU Capital Markets: Priorities for the Next 5 Years’ and cites the empowerment of investors and the stimulation of good corporate governance to support the sustainable finance agenda as a focus.
ICSF launches its Principles for Sustainable Securities Lending (PSSL)
ISLA & ICSF respond to consultation on Renewed Sustainable Finance Action Plan
April - May 2020i ICSF publishes two position papers: April 2020 - ‘Making Sense of Sustainable Securities Lending & Short Selling During the COVID-19 Crisis’ and May 2020 - ‘Reinforcing Global Sustainable Finance by Improving Guidance on Securities Lending’.
Nov - Dec 2020i ICSF decommissioned to move ESG focus into the mainstream ISLA working groups framework, as debate moves from a concept and design phase, to one of detailed implementation.
ISLA ESG Steering Group publishes matrix for SFDR and joint A&O paper, ‘Framing securities lending for the sustainability era’
ISLA publishes joint A&O paper 'Applicability of ESG to Collateral in the Securities Lending Context'