Chalk it up as another sign of the ever-lengthening tentacles of socially responsible investing (SRI): Citi has just launched a product that introduces SRI to the post-trade realm. Specifically, SRI screening options are now available within its securities lending cash collateral investment program, which facilitates the process of short selling, among other investing activities.
Citi’s head of global securities finance, Tim Douglas, says that as his group has watched SRI increase its command over investment capital. According to Paris-based think tank Eurosif, over $11 trillion was invested in SRI strategies at the end of 2010), an SRI cash collateral program came to seem like a necessary product offering.
“What’s happening is that our clients are in a position where they’re managing more and more money under an SRI umbrella,” Douglas says. “We want to be able to help them capture the value that comes from the securities lending market.”
Citi has partnered with Sustainalytics, an Amsterdam-based SRI research firm, for help with the product offering. Sustainalytics’ job is to oversee the SRI screening, which it will do by applying two filters: first is a worst-in-class level, which will flag and remove companies whose performance relative to industry peers is especially poor. Second is a screen that will extract companies tied to major controversies related to the environment, social issues, or corporate governance.
Douglas says client response to the new product has been very positive, although, he adds, it’s too early to tell whether the service is attracting new clients to Citi’s securities lending group, or whether it’s opening up securities lending options for clients who previously had avoided such programs for SRI-related reasons.
So an important question remains: is there truly a strong-yet-untapped interest among SRI managers to participate in securities lending? SRI who have been asked by Institutional Investor say the point has been raised more than once that shorting is off the table for them because, they argue, it’s often not a practice that contributes to economic stability. For his part, Douglas says that his group hasn’t heard any such hesitations from clients, adding that shorting is only one of the activities securities lending is used for, and that, overall, “we really feel like the securities lending industry is an essential part of the capital formation process.”
Plus, he says, he and his team are fundamentally service providers, and they created this product because they saw a demand for it.
“SRI is on the list of things that more and more of our sophisticated clients are doing,” he says. “The bottom line is, we feel like we’re innovating in the direction where we think our clients are going.”
