The relevance of ESG factors varies widely in the securitized market.
Governance analysis within securitizations is done at the deal sponsor level. Governance vis-a-vis alignment of interests between the sponsor and investor is relevant to all structures. Loomis Sayles, through industry/investor associations, led the effort to design and generate industry consensus with regard to enhanced structures to provide alignment of interests between the sponsors of MBS deals and the investors in those deals. These efforts have been coordinated by a task force facilitated by the US Treasury Department and its results published in 2016 (http://www.fairmortgagemarkets.org). In 2018 Loomis Sayles was among the founding members of the Fixed Income Investor Network, an investor-led coalition to promote a well-functioning marketplace (https://www.imn.org/structured-finance/conference/Fixed-Income-Investor-Network/Description.html). Continuing our leadership role in the Securitized Asset investor space: 1. Actively engaged SFA and are part of their initial ESG committee. 2. We agreed to participate on the ESG panel discussion at the SFA conference 2020. 3. FIIN is live and incorporated, and our head of Securitized Investments will act as the chair of the organization for its inaugural 2 year period. 4. FIIN's strategic plan includes addressing ESG, including determining how the industry can best incorporate ESG.
Social matters, specifically predatory lending practices, are relevant in consumer related finance. Consumer finance companies often access the securitization market to finance their consumer loans. Our investment process includes a thorough analysis of the loans and the overall business models to gain insight into the loan origination and servicing practices of the finance companies. In general, we favor businesses that employ fair risk-adjusted pricing, aim to provide needed goods and services, and/or help rebuild the credit history of the consumer. We shun business models that systematically engage in predatory lending activities or overly aggressive loan collection practices.
Environmental issues are generally not directly applicable to securitizations. Securitization involves lending to a diversified group of participants and does not typically offer the opportunity to be selective with regard to recipients. As a lender, we have no direct connection to, or influence over, the use of funds.