Securitisations and the EU Green Bond Standard: new EBA proposals shift focus from issuer to originator
The European Banking Authority (“EBA”) has reviewed how EU regulations on sustainable finance, (including the proposed EU Green Bond Standard (“EU GBS”), the EU Taxonomy and the Sustainable Finance Disclosures Regulation) could be applied to securitisations. It has recommended that, instead of establishing a new dedicated framework for green securitisation, the proposed EU GBS regulation should be amended to apply to securitisations.
These recommendations come as the EU authorities consider how best to include securitisations within EU policies on green and sustainable finance. Although a number of green securitisations have, in recent years, aligned with third party frameworks such as the ICMA Green Bond Principles, the EU Taxonomy does not apply directly to securitisation transactions, and financial instruments issued within securitisation transactions are not currently ‘financial products’ as defined in the Sustainable Finance Disclosures Regulation.
Against this background, the EBA was tasked with publishing a report on developing a sustainable securitisation framework for the purpose of integrating sustainability-related transparency requirements into the EU Securitisation Regulation. The resulting report: Developing a Framework for Sustainable Securitisation (the “Report”), was published on 2 March 2022.
Among key recommendations in the Report are that:
- The proposed EU GBS regulation should also apply to securitisations, provided that some adjustments are made to the standard. For example, the EBA recommends that the EU GBS requirements apply at originator level (instead of at the issuer/ securitisation special purpose entity (SSPE) level). This would allow a securitisation that is not backed by a portfolio of green assets to meet the EU GBS requirements, provided that the originator commits to using all the proceeds from the green bond to generate new green assets. The EBA sees this as “…an intermediate step to allow the sustainable securitisation market to develop…” and it has been welcomed by AFME as a tool to enable “…[financing] the energy transition alongside other financing instruments until such time there is relevant green collateral to securitise”.
- The EU Securitisation Regulation be amended to extend voluntary ‘principal adverse impact disclosures’ to non-STS (simple, transparent and standardised) securitisations.
- The EBA should monitor the development of the green synthetic securitisation market and, if appropriate at a later date, examine a potential framework for green synthetic securitisation. It should also assess the potential for a social securitisation framework at a later date once an EU social bond standard has been developed.
It is now over to the European Commission to consider the Report and submit its own report (based on the EBA recommendations) to the European Parliament and the EU Council on what action (including legislative changes) should be taken in respect of the creation of a specific sustainable securitisation framework. That report is likely to be delivered in conjunction with the Commission’s report on the functioning of the EU Securitisation Regulation more generally following its consultation last year (see our previous update: Securitisation Regulation: Commission consults on how the framework is functioning).
“…the EBA is of the view that the upcoming EU GBS regulation should also apply to securitisation, provided that some adjustments are made to the standard.”