European Securitisation and ESG-Related Issuance: Thriving With or Without SPOs?

Morningstar DBRS published a commentary on Environmental, Social, and Governance (ESG)-related European securitisation transaction issuance with second-party opinions (SPOs).

Key highlights include:
-- European SPO securitisation issuance in 2024 had a stronger start compared with the previous two years, with total issuance volume of EUR 2.9 billion spread across five transactions.
-- Residential mortgage-backed securities remain the dominant asset class for SPO securitisation transactions in Europe.
-- In 2024, Europe witnessed the first-of-its-kind data centre securitisation, which was a green-labelled commercial mortgage-backed securities SPO transaction.
-- We note the increase in the number of SPO transactions where not all tranches within the same transaction have an SPO.
-- In our view, the European securitisation market in general is moving away from issuances with an SPO.

"We are seeing a slight deprioritisation of ESG initiatives in Europe on concerns surrounding greenwashing and general anti-ESG sentiments. But the underlying principles of ESG have not diminished; the topic of ESG is still pertinent and, at its core, still relevant but the definition, meaning, treatment, and investment decisions with an ESG view are ever evolving", said Mudasar Chaudhry, Senior Vice President and Lead of European Structured Finance Research at Morningstar DBRS.