kets in providing ESG transparency and disclosure. By developing in-house ESG frameworks and sharing these with issu- ers, we have found that we can engage with them more effectively to obtain addi- tional relevant information in more stand- ardised forms. In prospective auto loan transactions, for instance, we have begun to calculate in-house estimates of CO₂ emissions for underlying vehicle collater-
By developing in-house ESG frameworks and sharing these with issuers, we have found that we can engage with them more effectively to obtain additional relevant information in more standardised forms.
al pools using publicly available data and proprietary tools that incorporate machine learning. We then share these estimates with the issuer, which in some cases has led them to disclose their own estimates. Our sponsor engagement has also, in some cases, led to wider industry adop- tion of certain practices. In UK RMBS, for instance, our request for transactions to include a ‘payment holiday’ reserve to accommodate the Financial Conduct Au- thority’s Covid-19 relief measures for mortgage borrowers was implemented by several issuers in 2020. Combined with the greater disclosure we sought regard- ing the types of borrowers accessing mortgage payment deferrals, alongside more detailed information on how lend- ers would protect vulnerable customers, this helped to mitigate liquidity concerns for investors and effectively restarted UK RMBS issuance, which had slowed signif- icantly following the introduction of UK lockdowns.
ESG provides a clear direction of travel We believe the direction of travel for the securitisation industry is clear. Investors will increasingly scrutinise ABS transac-
Issuers are making steady progress in disclosing ESG-related information, with newer lenders leading the way.
tions and investment portfolios, as ESG integration
continues to gather pace
across asset classes. Given our significant role in the European securitisation mar- ket, we believe that this places a strong emphasis on asset managers such as M&G to help drive the changes that inves- tors demand. In doing so, we believe this can provide us with a significant advan- tage in influencing positive developments within the industry and should aid our potential to deliver sustainable returns over the long term.
1) Source: Citi Research, European Securitised Products Month- ly Call, April 2021
To read our paper ‘ESG integration in asset-backed securities’, visit
www.mandg.com/institutional
For Investment Professionals only. The value of investments will fluctuate, which will cause prices to fall as well as rise and inves- tors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast. The article has been written for informational and educational purposes only and should not be considered as investment advice or as a recommendation of any security, strategy or investment product. Issued by M&G Investment Management Limited, registered in England and Wales under number 936683 with its registered office at 10 Fenchurch Avenue, London EC3M 5AG. M&G Investment Management Limited is authorised and regulated by the Financial Conduct Authority.
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