State Street intends to establish an environmental, social, and governance (ESG)-focused commingled cash collateral reinvestment strategy for its agency lending programme.
The agency lending team of State Street Global Markets has partnered with State Street’s asset management business, Global Advisors (SSGA), to provide pension plan clients with new ESG tools informed by its Global Advisors’ R-Factor — a proprietary scoring system for listed companies.
This tool is used to measure the performance of a company’s business operations and governance as it relates to financially material ESG challenges facing the company’s industry.
According to SSGA, the R-Factor is “the first ESG scoring system that offers companies a roadmap on how to manage and disclose their ESG practices, allowing them to take the action needed to enhance their scores”.
SSGA says the R-Factor addresses the current challenges with data on sustainable financing by removing opaqueness around ESG materiality in the scoring process, by drawing on multiple data sources and leveraging transparent materiality frameworks from the Sustainability Accounting Standards Board — a non-profit organisation, founded in 2011 to develop sustainability accounting standards — and corporate governance codes.
State Street Global Markets’ global head of client management — securities finance, Francesco Squillacioti, tells SFT the fund is “preparing to launch” and he anticipates a late May or early June rollout, “but that is subject to change”.
On whether the underlying clients or State Street’s traders will use the new ESG-focused cash strategy, Squillacioti says that securities loans — where the collateral is cash — generate cash collateral to be reinvested. “Based on a participating client’s securities loan activity, cash will be invested using this strategy,” Squillacioti adds.
Squillacioti also tells SFT that State Street is exploring plans to cover other client types, “but no timetables have been determined”.
The new investment strategy, which will follow short-term investment guidelines to the extent consistent with applicable law, is currently available only to retirement plan clients that participate in State Street’s agency lending programme, because pension plans are a large and important client base for State Street, Squillacioti says. However, the firm is looking into making this strategy available to other fund types in the future, Squillacioti adds.
Executive vice president and head of global markets at State Street Global Markets Nadine Chakar says: “The continued rise in interest in ESG principles across markets underscores client appetite for their securities lending strategies to work in synergy with their ESG strategies. This move builds on State Street’s commitment to leadership and innovation in applying ESG principles to cash reinvestment for securities lending.”
Senior managing director and global head of cash management at SSGA Pia McCusker says: “As a firm, State Street Global Advisors has firmly committed to ESG principles [and] partnering with State Street Global Markets, one of the largest securities lending cash collateral managers in the world, is a natural and logical combination and one that supports institutional investors’ ESG goals.”