Consultant Zone

ESG mortgages, FCA ups the stakes!

In our last blog we focused on the fact that RMBS investors are genuinely becoming more ESG focused.  This is partly because of the premium that underpins a green transaction (the ‘greenium’), but also because regulators are starting to drive green issues.  The latter was brought back into focus in a recent FCA ‘Dear CEO’ letter to Retail Mortgage Lenders.

The FCA has helpfully refreshed its ESG strategy, setting out its target outcomes and the actions that it will take in 2022.  The tightening of FCA requirements will not only affect the manufacturers of mortgages, but the enhanced requirements will also influence future investors and investment strategies.  Where ESG is concerned lenders and investors can no longer sit on the fence.

The FCA has adopted several themes; Transparency, Trust, Tools, Transition and Team.  As a business that focuses on portfolio review and due diligence, we are of course supportive of the outcomes listed under the transparency and trust work themes.  We identify with the planned outcome to enhance integrity in the market for ESG labelled securities.  This will ensure fair and effective integration of ESG in the financial markets.

Having previously highlighted our concern that the lack of clear, unified standards continues to hold back a wider adoption of green RMBS, we support regulation to address weak ESG disclosure criteria and increase the quality and quantity of data collection, as well as supporting government ambitions in green finance and to challenge ‘greenwashing’.

Where development and growth of ESG mortgages are concerned, we believe 2022 is the year when the market for green mortgages will really change.  Under the ‘Trust’ work theme already identified, in the next 12 months mortgage manufactures and investors will see detailed FCA stakeholder engagement, an updated consultation paper of disclosure rules and more specific action planning.

The question for lenders and investors today is are you ready for the FCA engagement and challenge?  If you’d like to discuss our views, learn how we can help with your portfolio assessments and discuss how we can help prepare your ESG responses in 2022, give us a call.