The trialogue in the European legislative process for the introduction of the European Green Bond Standard (EuGBS; see TSI news of 6 July 2021) is entering the home straight. However, the legislative institutions have not yet reached agreement on the treatment of securitisations under the EuGBS.
In its role as facilitator, the EU Commission published a non-paper on the treatment of securitisations under the EuGBS on 20 September. Therein, it presents various options for applying the use-of-proceeds approach of the EuGBS for "green" (true sale) securitisations. Among other things, it refers to the report published by EBA on 2 March (see TSI news of 2 March 2022). The options identified by the European Commission are presented below.
Options for the treatment of securitisations under the EuGBS according to the EU Commission
- Option 1: Use-of-Proceeds by SPV (current EuGBS approach): In this scenario, a securitisation would only receive the green bond label if the securitised assets are taxonomy-aligned.
- Option 2: Use-of-proceeds by originator and additional transparency requirements (EBA recommendation): Under this option, the obligations under the EuGBS would be applied to the originator and not to the SPV.
- Option 3: "Double Green" - The obligations of the EuGBS are applied to the SPV and the originator.
- Option 4a: Option 2 is applied first, and it is then switched to option 1.
- Option 4b: Option 2 is applied first and it is then switched to option 3.
TSI supports EBA recommendation
At the time, the EBA favoured the application of the EuGBS to the originator of securitisations. TSI has published a position paper on the occasion of the publication of the non-paper and the open point of contention of the European co-legislators on the handling of green securitisations. In doing so, TSI supports the position of EBA, which is listed in the Commission's non-paper under option 2. This application of the EuGBS puts the originator in the focus of consideration and recommends additional requirements for the transparency rules of the securitisation. TSI's proposal in this respect is that the average level of sustainability in the securitised asset pool should not be worse than in the originator's overall portfolio. In a previous statement, TSI has already shown that there are simply too few green assets in the market for option 1. If issuers had to apply options 1, 3 or 4, they would switch to other bond instruments such as unsecured bonds and securitisations would be penalised for their transparency.
The other options presented would thus inhibit the securitisation market and its important role in financing the green transformation. TSI therefore explicitly recommends the implementation of the EBA approach (option 2).
We will keep you informed about further progress in the trialogue on the EuGBS.