A Matter of Definition

Sustainability is a widely used term, yet it remains hard to define.

Common words associated with sustainability include Environmental, Social, Governance (ESG), 'green', impact, engagement and renewables. Unsurprisingly, securitisation professionals gravitate to defining sustainability in the context of securitisation.

This definition provided by one of our participants covers the spectrum.

“For me, as an organization in this corporate space, it's around being engaged and interacting and positioning yourself in society as a business that has a consciousness of environmental factors, governance, operations, and more broadly how the business is being run, those sorts of things. That's the way I think about it. In terms of my experience around sustainability it is really focused on that environmental piece more than anything else.”

- Non Bank Issuer For several participants, the focus was on the sustainable qualities of securitised assets. For others the emphasis was on the way securitisation participants manage their business. Investors tend to focus on governance, and issuers on both product and corporate behaviour.

“Part of our investment process has always been engagement with our originators. The underlying due diligence of our originators is extremely important. This type of engagement involves both the Social and the Governance [in ESG].”

- Local Investor

Industry participants are typically focused on the big picture and long-term goals. For lenders who want to support sustainable investments, how the borrower uses the loan is as important as creating investments that are attractive to investors. “We've got a mission to make every home sustainable. There are two lenses in which we look at it. One, we think about the sustainability of environment, household and the sustainability of a business such as ours. In terms of the environment it's a path to sustainability, so we focus on renewables, and on a transition to a renewable energy system that uses energy sources that are renewable and efficient. That effectively includes the electrification of a home where the source of energy is also sustainable.”

- Non Bank Issuer

If we were to summarise the thoughts of participants into one more definition it could look something like this: The practice of surviving and thriving in a way that’s beneficial to your stakeholders and the planet.

Sustainability or ESG?

Grappling with the difference between sustainability and ESG was not easy for participants and the terms are used interchangeably, without a clear distinction between the two. For example:

“Right now, I think of sustainability and ESG as synonymous ”

- Global Investor “The ESG lens is sort of a subset of the sustainability framework”

- Local Investor

“The ESG risk management framework is often used as sort of a booster framework when first looking at the issues of sustainability and disclosure in business”

- Service Provider “Within our market, I think the way folks look at ESG is as a broader term than sustainability”

- Service Provider

It’s a matter of perspective and there are no right and wrong answers. The majority were comfortable referring to ESG as a framework for thinking about the vast array of factors they consider when thinking about sustainability.