Measurement and Reporting It’s no surprise that measurement and reporting formed a decent chunk of the conversation with participants. If it was just a matter of determining whether a pool of assets satisfied a commonly accepted standard it would be relatively easy. But sustainability incorporates factors that go well beyond the pool and includes factors that, by their nature, require qualitative assessment rather than quantitative. Investors pride themselves on their ability to assess the quality of governance in the organisations they choose to invest in. This has been their bread and butter since securitisation began. But when it comes to social issues, they face challenges they may not have considered in the past. Not only do they need to make judgements about whether an issuer or originator meets their expected standards for things like employee relations and care, they also need to price these for risk. The growing focus on supply chain relationships, offshoring of processes and diversity in all its forms means they need to look beyond the parts of an issuer’s operation that deliver securitisation pools to how these impact on the sustainability profile of the companies they invest in. There are four key themes across participants’ discussion of the challenges of measurement and reporting:
19 Sustainability in Securitisation
1. The need for standards 2. Accreditation 3. Technicalities 4. The potential value of expertise
The Need for Standards There is a unified call for industry standards, yet differing views on how they should be devised and who should be responsible for devising them. There is also a question mark about how far standards will go as so many of the potential measures are qualitative in nature. There is a strong call for international standards, yet concern that there will be differences when it comes to Australian standards, as there is for US-based investors and issuers. It is generally accepted that Europe has taken the lead. Local issuers are already being asked for the information that global investors have access to in Europe, as the Europeans have already established standards. The view is that global investors will have a significant impact on the standards developed in Australia simply because those standards are built into their mandates. Adding to the challenge is a sense of urgency because participants foresee rapid growth in the sustainable sector. No one thinks it’s going to be easy.
“There really isn't any kind of a general agreement at the moment in the market on how this is all supposed to work its way through the investment process. One asset manager’s criteria for identifying suitable investments can be different from other asset managers criteria for determining suitability.” - Global Investor
“Each lender is doing the right thing in their own eyes, but you need to get investors comfortable with that approach. We really just have one chance to go right, so this needs to be collaborative across the investor and the issuer.” - Local Bank
“We expect that definition of 'green' to become globally adopted because EU’s already talking to China about harmonising their taxonomy there. I know there's work in the background from some of the well-known 'green' certifiers to start harmonising their taxonomy.” - Local Investor
