The securitisation industry has been struggling with defining green mortgages and meeting the environmental, social, and governance expectations of investors in an internationally consistent manner.
Australian issuers, keen to include offshore investors, will need to improve their data management procedures, a panel of industry advisers explained at the ASF conference yesterday.
The panel moderator, Marc Levine, managing director at Moody's Analytics Issuer Solutions, summarised the pressure points.
"By definition a securitisation is a bankruptcy remote special-purpose vehicle. So while many companies today already have, and provide, certain disclosures related to the company and its ESG practices there is very little, if any, disclosure that happens in respect to securitisation transactions and the underlying collateral," Levine said.
There is no international standard, far less any regional or national standards for this type of disclosure, although work is being done to level the field.
Another panel member, Grace Tam, investments director at the Clean Energy Finance Corporation, was also intrigued by the conundrum posed by the lack of requirements for ESG disclosures on securitisations.
"At the CFC we try to create a workable example of how a transition to a low carbon economy might look," she said.
The CFC's aim is for all securitisations nominated as "green" to be able to stand up to scrutiny in the fixed income market
The logic being followed is that in order to create a green securitisation work needs to be done at the front end to create a green asset: that is, "green" home loans, "green" car loans, "green" personal loans.
"We work with the operational team of the issuer to make sure they can create a product that's acceptable to consumers, while also being able to be packaged into a green securitisation to be pushed out into the fixed income market," Tam said.
"That means working on a top-down approach within the issuing company, from buy-in by management, down to the operational teams willing to put in the additional work to collect the extra data."
The data needs to be credible.
"The way the CFC has approached this in Australia is to take the home energy rating system as its starting point," Tam said.
The data collected for each green home loan needs to be stored in a way that allows it to be retrieved later, along with any reports of improvements such as rooftop solar and battery storage.
"We decided the EU taxonomy is clear and easy to follow – new buildings are required to be built above the building code requirements, and renovations and remediations of buildings needed to reduce energy demand by 30 per cent," Tam said.
On the green home loan side the CFC have created two programs to date. One is with Bank Australia – although those loans are not funded by securitisation but the bank does have a sustainability bond framework
"The second one is with Firstmac and they completed a green RMBS this year," Tam said.
She estimated that there was $132 trillion in funds available for investment in green securities.
Fellow panel member Jennifer Hellerud, head of securitisation at RBC Capital Markets said