Public sector agenda for stimulating private market development in green securitisation in Europe

Headline issue

Scaling up investment in low-carbon infrastructure is of paramount importance for limiting global warming to 2°C and for the EU to meet its 2030 emissions targets. The annual global investment required for infrastructure in a low-carbon scenario amounts to trillions of euros; this is not being met.

This paper examines the role that green securitisation could play in plugging this gap.

 

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What is green securitisation?

 A securitisation can be defined as ‘green’ when cash flows backing it come from low-carbon assets. Low-carbon assets can be aggregated, securitised and sold to institutional investors; the investors’ return on the security is drawn from the cash flows of the underlying assets, such as loans, leases or receivables.

Key Actions

The public sector can play a key role in kick-starting and supporting the green securitisation market in Europe. There is momentum to revitalise the securitisation market and to introduce sustainability elements into capital markets legislation; this should be capitalised on. Actions to stimulate the growth of green securitisation markets include:

  • Issuing guidelines for ‘green’ assets to support the identification of green investments in existing portfolios
  • Developing standardised green loan contracts
  • Initiating financial warehousing of standardised green loans
  • Providing credit enhancement to support demand
  • Supplying cornerstone investment and incorporate environmental factors into risk weightings

This paper was written in collaboration with the ESRC Centre for Climate Change Economics and Policy, who also provided project funding.