Green securitisation – ECB adds its voice in support of the “green proceeds” approach

The European Central Bank has just published its opinion on the draft EU Green Bond Standard legislation.  Overall an excellent piece, it is notable when it comes to securitisation for its support for a definition of green that encompasses issuance where the proceeds are used by the originator to finance sustainable projects.  This can be found in article 3.1.5 of their opinion.

As our readers will recall, a debate arose as to whether the legal EU definition of sustainable securitisation should be limited solely to securitisations of green assets (eg mortgages of green housing or auto loans for electric vehicles) or could also cover – as is the case for all other capital market instruments – bonds whose proceeds are used to finance the transition to a sustainable economy.  PCS has argued forcefully that the latter is both logically compelling and far better helps achieve Europe’s sustainability goals.

In the context of the draft EU Green Bond Standard legislation, the intervention of the ECB is welcome not only for its support for the broader definition but also at a technical drafting level by suggesting a clarification of the text.  As currently drafted, the law may not allow a real “use of proceeds” approach because of the ambiguity of the definition of proceeds for securitisations.  The ECB has rightly suggested the ambiguity be lifted to clarify that proceeds of a securitisation in the hands of the originator may be used for green purposes and not, if one followed a technical narrow reading, only the proceeds in the hands of the special purpose vehicle.