Today the European Banking Authority released its Report on Developing a Framework for Sustainable Securitisation. This report was requested by the co-legislators who asked the EBA to outline how they would envisage a regime for green securitisation.
Although PCS still has to review the report in detail, a first look suggests that the EBA should be commended for the logical, coherent and fair approach it has brought to bear of this subject.
First, the EBA has concluded that there is no need or rationale for having a conceptually different approach to the definition and regulation of green securitisations from that of capital market instruments generally. PCS had expressed a concern over the asynchronicity of the work on green securitisation and the work of green capital market instruments in general in the context of the legislative passage of the EU Green Bond Standard. Specifically the accidental request that the EBA define “green securitisations” as a sub-category of capital market instruments before the EU had settled on a definiton of “green capital market instruments” as a whole. The EBA wisely concluded that this made little sense and that securitisations should be regulated under the same conceptual umbrella as all other capital market instruments.
Secondly, flowing from the first point, the EBA has agreed that a green securitisation should be defined, like any other green bond, by the use made of the proceeds of the issuance rather than by the green nature of the securitised assets. PCS strongly approves of this approach as we have pointed out publicly that any other would lead to deeply illogical consequences and reduce the amount of financing to the green transition.
The EBA also suggests that this proceeds based approach might be a transitional one until we have greened the European economy. There is a lot to be said for this view.
Finally, the EBA has pointed out that there is a technical amendment required to the current draft of the EU Green Bond Standard legislative text to ensure that the proceeds the use of which defines a green securitisation are the proceeds in the hands of the originator and not the special purpose vehicle. The same point had been made by the ECB and a number of market participants (including PCS). This appears not to be a political issue but merely (if crucially) a matter of getting the drafting right.
On synthetic green securitisation and social securitisation (the "S" in "ESG"), the EBA suggests more work needs to be done. This seems reasonable to us at PCS.
This is a well thought through and excellent report that deserved to be a building block on the path to mobilising the securitisation market in financing the desperately needed ecological transition