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Applicability of ESG to collateral in the securities lending context

The industry is increasingly factoring climate financial risk and other sustainability risk considerations into collateral selection.

However, there is no specific guidance as to how collateral posted in the context of securities lending transactions should be categorised or treated for sustainability purposes.

Allen & Overy and ISLA have jointly produced a paper entitled ‘Applicability of ESG to collateral in the securities lending context’ which submits, amongst other things, the primary role of collateral is as a risk management tool for the market and, accordingly, how vital it is to ensure adequate diversification of collateral guidelines, as well as any analysis for collateral acceptability to include both sustainability and ESG risks.