ESG Data Services for Securities Finance and Collateral Markets 

Collateral – Lifeblood of the financial system

Euroclear’s Collateral Highway had an average daily collateral outstanding of over € 1.9 trillion during Q1 2022. As ESG investing continues to gather momentum, firms are increasingly seeking to incorporate ESG guidelines into their collateral management.

As a leading triparty agent, Euroclear is supporting clients’ efforts to build ESG into their collateral management through the Euroclear Collateral Highway.

The importance of standardisation

As a triparty agent, the use of data is critical in how Euroclear ensures our clients can manage their collateral in line with their chosen risk profile. Risk appetite is translated into a schedule of acceptable collateral using parameters supported by data. Consequently, triparty AutoSelect relies on comprehensive and accurate data to feed the process and to verify that the collateral received is in line with the collateral schedules defined and agreed on by our clients. Even though 100% standardisation does not exist for all collateral criteria, any mismatch between our clients’ expectations and the actual collateral posted need to be minimal and quickly corrected.  

Due to the current lack of standardisation in ESG data, the challenge is finding the right balance between providing clients with the necessary tools to set up their ESG compliant schedules whilst keeping their chosen financial risk profile intact. By moving in step with the collateral markets in adopting new standards and practices as they develop, the risks of potentially limiting clients’ available choices are minimised and maximum flexibility maintained.  

A successful solution needs to avoid each client using their own bespoke list of ESG collateral as this will be unscalable and not clear to counterparties. Each of those lists could potentially include 1000s of different securities. The solution is to find a way to identify ESG securities using securities reference criteria.  

A phased approach to ESG collateral management

The Collateral Highway phased approach to the implementation of ESG recognises the evolving trends, increasing data and numerous methodologies and retains flexibility as market standards emerge.  

The first phase in creating dynamic ESG criteria to avoid the need for lists of ESG issuers/issues was the inclusion of 65 ESG indices for both fixed income and equity collateral. It is now possible to restrict accepted collateral to only green bonds by simply selecting a Green Bond Index as the eligibility criteria. Although these indices overcome the problems of static data, they are based on a third-party input and they do not offer the fully granular solution that some clients desire.   

The second phase of our implementation, expected to go live in 2023, will see the roll-out of a more granular solution allowing clients to select individual ESG securities collateral criteria.  

The challenge for the industry will be to strike the right balance in their ESG approach. Today, data providers offer close to 2.000 ESG related criteria but identifying which of those will be relevant going forward and how many others will become relevant is a complex exercise.  How much and what type of ESG data is needed to ensure the right building blocks are provided to clients to allow them to build their own universe of accepted ESG collateral without overcomplicating the collateral schedules? More data is of little use if its informational value is low, and adding complexity without clarity is counter-productive.  

Following discussions with our clients we believe the addition of bond flags will add value. Providing bond flags, such as Green, Sustainable, or Social, with the relevant assurance levels – going from self-declared to third party verified – will allow a more granular definition of the ESG universe. 

The ESG ratings conundrum

The Collateral Highway will also see the addition of ESG rating metrics during phase two. Differences in rating methodologies, gaps in quality ESG data, self-reported and unaudited third-party data has led to substantial divergence among the ESG ratings from the numerous rating providers. It is also challenging to aggregate the very different pillars of ESG into a single measure. This makes direct comparison of ESG ratings difficult.  

The market would benefit from some convergence of the rating providers to a common standard for a stronger confidence level when allocating collateral based on multiple rating sources. As ESG rating methodologies evolve and are adapted and enriched, the most relevant ones will be onboarded into the Collateral Highway when appropriate.

New tool: ESG select

Finally, we are looking to provide our clients with a tool that will allow them to simulate and monitor the ESG collateral included in their collateral inventories. This tool can help collateral takers to start monitoring the ESG quality of the collateral they receive without having to “impose” ESG eligibility criteria that could limit the amount of business they can do. As the market prepares for ESG we believe it will add value for our clients to be able to assess to what extent their current collateral portfolio aligns with selected ESG criteria without adapting their collateral schedules.   

Greenomy – Providing ESG solutions

Euroclear recently acquired a majority share in Greenomy, an award-winning regtech/data SaaS platform enabling companies and financial institutions to generate and access standardised, company level ESG data.  

The company provides data analytics features to help improve sustainability performance and facilitate the redirection of funds towards sustainable activities, in line with the objectives of the EU Green Deal.  

Greenomy will also gradually integrate other non-EU Green Taxonomies to offer clients a one-stop solution for their global operations.  

Aligning the Greenomy platform to the Collateral Highway will allow us to capture the granular ESG data from issuers and to use it to determine collateral eligibility based on a regulatory framework.  

Moving towards a greener and more sustainable future

Undoubtedly collateral will become more and more ESG aligned as the world moves into a more sustainable place. Nevertheless, we shouldn’t forget that today, the amount of ESG collateral is still limited and insufficient to cover all collateralisation needs.   

In December 2021, the total European government debt outstanding was around €14 trillion, of which €257 billion, or less than 2% were issued under an ESG label.   

It should be noted that this amount had doubled in only one year, so clearly the trend is there, but we still have a way to go. It is also to be expected that the majority of collateral will not be issued under ESG, in the same way as not all collateral is of investment-grade quality. This will of course provide opportunities for different investment strategies. 

It will be key for us to monitor the collateral market as it adopts ESG and to offer the right tools and transparency to our clients, not only to allow them to comply with upcoming regulations and internal policies, but also to decide when to start proposing ESG criteria to their counterparties.    

ESG is gathering momentum, in regulatory terms but also in terms of investor demand. Current measures are evolving and the demand for more scrutiny of ESG performance will only increase. In the future will it be sufficient to use high level groupings such as carbon emissions/land use and biodiversity, human capital, health & safety, and corporate governance/business ethics? Will the number of women on the board, greenhouse gas intensity per employee, workforce accidents, etc. become as important as financial performance and lead to the need for specific ESG raw data points? The Euroclear Collateral Highway offers a scalable flexible platform for collateral management and will continue to evolve to play a full part in creating and maintaining a sustainable financial ecosystem. 

The Euroclear ESG mission is to support and enable a sustainable financial marketplace while limiting our impact on the environment, providing an equitable and inclusive workplace while conducting business in an ethical and responsible way.  


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