Prime Collateralised Securities (PCS) took its first big step towards developing a green verification product for European securitizations on Monday. Known already for its work in verifying Simple, Transparent and Standardised (STS) transactions, PCS is exploring whether a similar offering for green deals could help get issuance moving without waiting for the EU to finalise regulations on its Green Bond Standards (GBS).
It’s about time too.
Market participants enjoy blaming the regulators at every turn, often with a great deal of justification, but perhaps they are so used to the perception that rule makers are holding things up that they do not look to see what they can do for themselves.
On green securitization, they really have waited. While the Association for Financial Markets in Europe (Afme) believes that green securitization could soon be a $300bn market, the state of play is underwhelming.
Green securitizations have made up just 1.4% of all green issuance in Europe since 2019, according to Afme. Meanwhile in the US, green securitizations make up 32% of all green issuance over the same period. Yet you would be hard pushed to find anyone that would say green finance is a more developed concept generally in the US than Europe.
In addition, the EU’s GBS could quite conceivably not be ready until 2025, wasting yet more time to harness the power of securitization in financing the green transition.
The US securitization market is vastly different to its European counterpart, but the attitude among its participants is different too when it comes to ESG. There is an enterprising nature where experimentation is encouraged. One lawyer even likened it to the manifest destiny culture of the 19th century.
Perhaps Europeans are not as naturally brash, but the time to start making an impact on climate change is quickly running out. This week, PCS prised open the door. Those in the European market should not dither waiting for the EU to tell them what to do. It’s time they started asking for forgiveness, not permission.