Dutch giant PGGM looking to launch principles for sustainable securities lending

Japan’s GPIF suspends securities lending over stewardship, transparency issues

Dutch pension investment giant PGGM says it is planning to launch a “Principles for Sustainable Securities Lending” initiative.

“Just like GPIF, PGGM and her clients continually evaluate whether securities lending can be reconciled with responsible asset management.”

It comes as Japan’s giant Government Pension Investment Fund (GPIF) dropped a bombshell today by saying it was suspending its equities securities lending programme as it doesn’t fit with its stewardship aims.

“Just like GPIF, PGGM and her clients continually evaluate whether securities lending can be reconciled with responsible asset management,” said PGGM Portfolio Manager Roelof van der Struik, a former member of the board at industry body the International Securities Lending Association (ISLA). PGGM is owned by healthcare pension fund PFZW.

“You can only engage in lending in a responsible manner when you have an integral knowledge of the lending product and robust policies on voting and tax”

Roelof van der Struik, PGGM“Our stance on lending out equities for the past 20 years has been ‘yes unless’. As a result a large part of the PGGM funds do lend out equities but not all – the manager always has the final say on whether to allow lending in her/his fund.”

Van der Struik continued: “Securities lending has its issues but also brings benefits to lenders and financial markets as a whole.

“It is our opinion that you can only engage in lending in a responsible manner when you have an integral knowledge of the lending product and robust policies on for example voting and tax in place.”

He went on to say that PGGM is now part of a group of large responsible investors, two market bodies and an academic who will this year launch a ‘Principles for Sustainable Securities Lending’ initiative. “Or in other words to summarize our position: ‘You have to play the game if you want to help set the rules’.”


It’s a €20trn market but Elon Musk hates it and wants it banned and it has been called a balancing act. It’s been called “opaque but lucrative” – but some big players praise its role in price discovery. 

Securities lending is slowly coming out of its silo and emerging as a topic in its own right within the stewardship and ownership arena.

GPIF announced it was suspending its stock lending activities for lacking transparency and being incompatible with its stewardship activities.

A statement from the influential investor, the world’s largest pension fund, says it requires its asset managers to enhance the long-term value of investee companies by “conscientiously exercising voting rights” and engaging in “constructive dialog” with companies.

“Conversely, stock lending, which GPIF currently conducts over the course of fund management, results in a temporary transfer of ownership rights to the borrower. This effectively creates a gap in the period in which the stock is held by GPIF, and can be considered to be inconsistent with the fulfilment of the stewardship responsibilities of a long-term investor. 

“Moreover, the current stock lending scheme lacks transparency in terms of who is the ultimate borrower and for what purpose they are borrowing the stock.” So it has suspended stock lending “until further notice” – although it may be reconsidered in the future if improvements are made to enhance transparency.

The GPIF is not the first to worry that securities lending could undermine stewardship: market sources at some of the world’s top institutions have previously expressed misgivings about the practice to RI.

Some large pension funds like the Dutch pension fund ABP and the UK’s BT Pension Scheme have quietly ceased all stock lending. Sustainability boutique WHEB doesn’t offer it, saying lending helps to facilitate short-termism.

But Norges Bank Investment Management issued a paper in 2016 arguing securities lending contributes to well-functioning markets – with a particular focus on price discovery.

In its third quarter report last October, Norges said that counterparty risk exposure from its securities lending programme amounted to 57% of its total counterparty risk exposure, rising from NOK67.1bn at the end of 2018 to NOK71.9bn at the end of the quarter – “mainly due to an increase in equities lent”.

In September this year, Responsible Investor reported ISLA saying that ESG investing has clear ramifications for the burgeoning global lending markets.

Its annual report highlighted how securities being made available by institutional investors within lending programs grew from €16.6trn at the end of last year to €19.6trn trillion at the half year end. 

Back in May, ISLA’s CEO Andrew Dyson gave an update to the Bank of England’s Securities Lending Committee.

According to the BOE minutes, ISLA set out four current drivers of the securities lending market, one of them being the momentum from the ESG agenda. “This brings about the question of whether lending can sit comfortably alongside a good corporate governance structure,” the minutes reported.

Europe’s updated Shareholder Rights Directive requires asset managers to disclose their policy on securities lending and how it is applied to fulfil engagement activities and AGM voting.

In the Netherlands, the July 2018 stewardship code went further, mandating asset owners and managers to recall lent shares if significant votes are coming up at an AGM. And in the US, the SEC’s Investor Advisory Committee has discussed studying in more depth how securities lending affects voting rights and results.

In May this year, campaign group Better Finance challenged BlackRock, UBS Asset Management and Deka, amongst others, on the revenues generated by securities lending.

It queried fund managers’ compliance with rules from the European Securities and Markets Authority (ESMA) that say that 100% of the net income from securities lending must be returned to the UCITS funds they manage.

The GPIF’s move today will go a long way in bringing greater accountability to what Better Finance calls an “opaque but lucrative” part of the fund industry.

Previous coverage of this issue:

Paul Hodgson: Securities lending – it’s legal, but is it right for long-term owners?

Carillion’s ‘big short’ puts spotlight on securities lending and investor stewardship