Investor Demand Irrespective of the growth and trajectory of sustainability as a focus for the securitisation industry, investors are likely to have the final say. For investors it is clear that demand is being led by the demands of their clients, but increasingly there is regulation to consider as well. Local participants claim there has not been a lot of new activity from regulators in relation to sustainability and ESG, but there is a sense that this might eventuate. In New Zealand, laws are being introduced that will require companies to report on climate change in their financial reports. In Europe, as we’ve seen, there are both guidelines and regulation already in place. Participants from the United States talk about guidelines and standards being on the way. Against this backdrop, global investors are asking a lot of questions about ESG based matters. “It's very rare to speak to an investor these days who isn’t actually properly check-listing sustainability requirements as part of their investments.” - Non Bank Issuer Recognising an issuer’s ESG credentials is common, but it’s still not dominating investment decisions and investors are not yet walking away from investments that don’t meet specific mandated criteria. However, the move towards minimum requirements for sustainability reporting is probably not far away.
27 Sustainability in Securitisation
“I definitely think there's a focus on the underlying assets. Again, I don't think it's at the level yet where investors are not participating in transactions because they've got these really firm mandates that must be met - there's still this sort of broader investment lens. So I think it's an element. I think it will continue to grow in importance, but it's not changing investment decisions at this point.” - Non Bank Issuer
“I’ve been asking all of our issuers for their statement on modern slavery and it’s something that our credit team look at now. It’s like KYC in some ways.” -Global Investor For those that have been able to deliver 'green' assets to the market, they report a sense of excitement amongst investors and a genuine interest in what they are doing. This is likely to continue until volumes catch up with demand.
“Following our first public term deal issuance, I do think there's probably a couple of things; I think the level of interest and curiosity was probably above the normal level for a first-time issuer, because of the mission letter and because of the 100% 'green' nature of the assets. The questions were probably more under the lens of excitement, rather than questions, because it was very clear what we did. In terms of the questions around the sustainability piece it was generally, ‘what else could be included in sustainable assets?’ and that was the interesting question.” - Non Bank Issuer As we have found with securitisation deals generally, investors have an ongoing need to report on the performance of the pool over time. However, the other issue raised in the context of 'green' investments is whether the intended outcome or impact of the 'green' assets was achieved. Securitisation is perceived to have an advantage as they can ringfence assets which gives investors confidence that what they see is what they get.
