Our Securitized Team had 95 documented engagements with issuers during the course of 2019. A summary of these engagements is below:
Consumer ABS: Issuer awareness of ESG increased as compared to 2018. Still, many are still trying to understand the aspects of ESG and how to implement it for securitization. Overall, governance was the dominant topic of discussion across most of the meetings, followed by social (i.e. fair lending practices).
Commercial ABS: Given the variety of asset classes contained within Commercial ABS, we continue to receive mixed responses. Most ESG responses have been from issuers who have environmental / green initiatives within their workplaces. Nevertheless, while not identified specifically as governance issues, standard discussions included deal structure and company governance issue, though as stated they were not specifically discussed with reference to good governance practices.
Residential Real Estate: The issuers with whom we have conferred have not addressed ESG specifically within their activities, and have not heard the question often. The GSEs are a notable exception, with significant economic concessions being made to offer MWOB (minority-women-owned-business), auctioning of pools of RPL (re-performing loans) and NPL (non-performing loans).
Commercial Real Estate: The CMBS Issuer is a trust and has no policies. We have spoken with various underwriters and they recognize that for certain assets (Single-Asset Single-Borrower transactions), LEED certification (energy efficiency, etc.) adds to the value of the asset. Several of the mortgage REITs have awareness of ESG funds and are crafting policies. But economic factors (in the context of fiduciary duty to their owners) are the driving consideration. The rating agencies are looking into ESG scoring for CMBS but most expect managers and borrowers will develop their own policies.