Winner: M&G Investments
M&G has won the Investor of the Year category in SCI’s inaugural ESG Securitisation Awards, following a year in which its dedication to engagement, fair and accurate ESG assessment of ABS deals and carbon emission modelling was evident. Building on over 20 years of experience in the ESG space, since the founding of its in-house ABS credit research team, M&G has consistently driven the industry forward in improving and standardising ESG analysis in structured finance. As one the largest investors in the UK and Europe, the firm is playing a significant role in developing a consistent methodology and standardised approach for ESG practices.
At the heart of M&G’s ESG approach to ABS transactions stands a rigorous scoring process, fully integrated into its investment process. The scorecard consists of core factors supplemented by more bespoke factors for each specific asset class.
Last year alone, the firm scored over 150 deals using its proprietary framework, which analyses ESG risks within the transaction structure, asset pool and counterparty of a transaction. This results in specific ESG and overall scores for deals.
The ensuing scorecards generate a score which is comparable across securitised asset classes. It allows M&G to tackle the challenges and complexities around ESG analysis for ABS portfolios.
“Unlike general corporate ESG analysis, there is a lack of a recognised third-party provider of ESG metrics in the securitisation asset class,” notes Anuj Babber, head of structured credit and private asset research at M&G. “Working in a constructive manner with issuers and trade bodies to form a framework that we think is fit for purpose and aspirational is something that we value in our approach. While we recognise that we are at the infancy of ESG analysis in securitisation, we believe that our scorecard evaluates a lot of the structural context and nuances around the securitisation asset class.”
Cristina de Guzmán Esteban, ABS credit analyst at M&G, further highlights the firm’s collaborative approach to ESG analysis. “A key point and differentiating factor in our approach is the collaboration with issuers, investors and trade associations, especially given the lack of regulatory guidance in structured finance. We are in continuous dialogue with different parties, which has been central to our framework design and allows us to be aligned with expectations of the market.”
While the securitisation industry is still in the early stages of providing ESG transparency and disclosure, Babber argues that standardisation and consistency are central to its development and evolution. “Issuers are continually learning what the investment community is looking for in terms of data disclosure. Additionally, we are also seeing a more constructive framework from trade associations. The focus is sharpening; however, the market needs to move to a standardised disclosure approach, in order to make any sense out of the ESG data metrics that we are getting.”
He adds: “The securitisation community recognises that we are on a journey. There is a lack of any third-party ESG score provider and therefore it is in everyone’s advantage to work constructively together. There is increasing regulatory pressure to provide better ESG disclosure across all financial products and growing demands to integrate better ESG analysis in the investment process will provide the catalyst for better information.”
Through its scorecard, M&G is building something that is purposely aspirational, while recognising that it is at the infancy of this journey. “It is important that we create something that works not just for today, but that also works for the disclosure we receive tomorrow,” Babber notes.
Reflecting on what the future holds for ESG in ABS, the team looks forward to the publication of the EU Green Bond Standard - which will include securitisation - while warning against the risks of green labelling. Although European green securitisations still only account for 1.4% of the total green issuance in Europe, De Guzmán Esteban describes the importance of sustainable ABS moving forward: “Securitisation can play a very big role in transitioning the economy towards a more sustainable future through supporting the finance of green assets. At M&G, we look forward to responsibly supporting this transition through active engagement with our counterparts.”
For full coverage of SCI’s ESG Securitisation Awards, click here.