Call to Reform Green Bond Lending Gains Momentum
Securities lending involving green bonds poses a rapidly
emerging integrity risk with direct implications for sustainability strategy,
risk governance, and fiduciary duty. While green bonds are structured to
support the climate transition, their unmonitored deployment in lending markets
risks undermining that purpose.
Where Environmental, Social and Governance (ESG) mandates
or regulatory frameworks require demonstrable environmental alignment, lending
without restrictions or oversight these may breach internal policies or
regulatory expectations—particularly when green assets are used to finance
carbon-intensive short positions. A short position in finance refers to
a trading strategy where an investor sells borrowed securities with the
expectation that their price will decrease.
A persistent lack of transparency in secondary market
activities—including securities lending, collateral reuse, repurchase
agreements (repos), and derivative exposure—not only erodes trust in existing
instruments but may also stall the development of future green finance markets.
Global Principles for Sustainable
Securities Lending, a not-for-profit Community Interest Company based
in Cardiff, Wales UK, has released a call for action paper titled: “Green
Bonds Under Opaque Loans: A Call to Pause and Reform Green Bond Lending
Practices through Transparent and Fintech-Enabled Solutions.”
Dr. Radek Stech, CEO of Global PSSL & Founder of ABC
Score™ said: “This paper offers a constructive contribution to an evolving
conversation. As green bonds mature, it is important to ensure that
post-issuance practices — including lending and repo — align with their
original sustainability commitments.”
Crucially, the paper also proposes a solution: a set of
targeted metrics designed to help organisations across the green bond value
chain close transparency gaps, build investor trust, and strengthen the
integrity of sustainable finance. These metrics are set to be integrated into
the upcoming ABC Score™, an AI enhanced governance-oriented tool designed to
provide more transparency into the markets. Members of Global PSSL’s Asset Owners
Council will support testing of these metrics in the second
half of 2025.
Diandra Soobiah, Chair of the Asset Owners Council and
Director of Responsible Investment at Nest, a UK public corporation, said:
“Nest commends the Global PSSL for shining a spotlight on the role of green
bonds in the securities lending value chain. We welcome the report’s
recommendations and are pleased to support efforts to improve transparency and
understanding of how securities lending might impact the integrity of green
bonds. We look forward to helping test the proposed metrics as part of
this important work.”
The lack of transparency and actual, or potential,
misalignments between green bonds’ labels and their market behaviour reinforce
the urgent need for governance tools such as the ABC Score™. This tool aims to
provide a fuller assessment, balance, and calibration opportunities for the
green-labelled instruments beyond issuance.
In contrast to conventional ESG ratings or pre-issuance
certifications, the ABC Score™ focuses explicitly on post-issuance practices. While
the Score addresses broader themes of market integrity, investor trust,
governance and market infrastructure, the present paper focuses on its
application to the green bond lifecycle as a particular urgent and illustrative
case.
Unlike traditional ESG frameworks, ABC Score™ will enable
investors, policymakers, and regulators ‘to follow the money’.
By assessing factors such as transparency, alignment with green
objectives, and counterparty integrity, the Score aims to help investors,
regulators and other key stakeholders monitor potential risks that existing
infrastructure models may not capture.
Sarah Wilson, CEO at Minerva Analytics, said:
“Data integrity is a critical ingredient for building market trust. Asset
owners are clear that there is no place for greenwashing in any part of their
responsible investment strategies. The ABC Score™ framework is a timely
market-driven response to supporting a high integrity green bonds market.”
Michael Riggs, Non-Executive Director at the Global PSSL
Secretariat, expanded on the role of ABC Score™: “I see the ABC Score™ as
a game changer, cutting through the greenwashing that cloaks bad investment
practices from public view. The ABC Score™ will give greater transparency to
the market.”
Dr Stech explained: “What we have learned over the last
few years is that there are many challenges with securities lending and that
the potential of ESG has been wasted by those who have used it only as a public
relations tool. ... Global PSSL has started work on the ABC Score™ as a tool
for increasing transparency in the securities lending value chain. Using
artificial intelligence to feed these scores may help to identify certain
themes/trends and drive the debate and changes in [market] behaviour.”
Comments
Post a Comment