Shades of green: use of proceeds, transparency and supervision for sustainable securitisation

Over the past year, we have seen a cooling of appetite in the syndicated loan and Eurobond markets for "green" loans. Many corporate borrowers, have concluded that the margin adjustments from meeting or failing the agreed KPIs do not justify the burden of reporting required for demonstrating compliance. 

Securitisation has not been subject to quite the same trend. The development of the green ABS market has not relied on margin ratchets or reductions, but rather the marketing and distribution benefits which green or social ABS may enjoy. In addition, the market for green ABS has been slower to kick off than the wider corporate debt markets, partly due to the challenges of applying the use of proceeds test to securitisation issuers. 

In this article, we take a look at the two primary frameworks for ESG ABS – the EU Green Bonds Regulation¹ and the ICMA Green/Social Principles². We consider whether the challenges associated with the use of proceeds test have been addressed, and take a look at green and social ABS issuance in the past 18 months.

1. Regulation (EU) 2023/2631 of 22 November 2023 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds
2. https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/

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