BNY Mellon Unveils ESG Collateral Solution
Posted by Colin Lambert. Last updated: November 15, 2021
BNY Mellon has enhanced its electronic collateral schedule manager, Rule, to allow market participants to apply their environmental, social and governance (ESG) principles to the assets they are willing to accept as collateral.
In what the bank says is a “milestone development for the collateral industry”, international collateral management clients using Rule can now digitally express their ESG preferences by leveraging ESG ratings and indexes. The firm’s US clients are able to take advantage of these same ESG eligibility capabilities by updating their schedules using the current US methodology, the bank adds.
The functionality draws on MSCI ESG Ratings through BNY Mellon’s ESG Data Analytics. These ratings assign ESG scores to securities under three distinct pillars: an environmental score, a social score and a governance score. These three scores are then adjusted and aggregated into a final ESG letter rating, from AAA to CCC.
The ESG Data Analytics incorporate these MSCI ESG Ratings into clients’ collateral eligibility decisions via the schedule manager. In practice, BNY Mellon says this means collateral receivers and providers can agree that only securities with a certain ESG rating are acceptable as collateral.
“Rolling out this capability takes Rule, a proven technology that has already transformed the process of negotiating collateral schedules, and expands it into a very crucial and topical area of focus for the industry,” says Brian Ruane, CEO of Government Securities Clearing Corp, clearance & collateral management and credit services at BNY Mellon. “Now, through the incorporation of capabilities from ESG Data Analytics, a client can bring their ESG priorities into negotiations around acceptable collateral, adding an entirely new dimension of utility to the platform.”
The bank says that MSCI ESG Ratings represent just the first input into its ESG collateral management capabilities in what will be an iterative process of further honing the sophistication of the Data Analytics’ patent-pending ESG mapper. In future releases, BNY Mellon says it expects to add supplementary ESG data to clients’ ability to express their ESG preferences, making the offering even more responsive to their environmental, social and governance goals.