17 Apr 2024

SAFE research team calls for more data transparency in the European automotive securities market

A SAFE White Paper proposes an innovative solution to integrate sustainability data into asset-backed securities for vehicles in line with EU climate targets

As cars and vans account for a significant share of annual CO2 emissions, the transition to zero or low-emission vehicles (ZLEVs) is crucial for the EU’s stated goal of climate neutrality by 2050. In response to a public consultation by the European Securities and Markets Authority (ESMA), a research team at the Leibniz Institute for Financial Research SAFE has now analyzed the need for transparent sustainability reporting in the European market for auto asset-backed securities (ABS) In a recent SAFE White Paper, the team highlights the role of innovative financial instruments such as green auto ABS in incentivizing the adoption of environmentally friendly vehicles and thus supporting European sustainability efforts.

“With the current regulations in the auto asset-backed securities (ABS) market, there is a challenge in assessing the energy performance of vehicles due to different measurement methods in various countries. To address this, we propose a new approach that leverages existing vehicle identification systems, such as the Type Approval Number (TAN) and the Type Variant Version Code (TVV). By using these identifiers to integrate loan-level data with sustainability-related vehicle information, investors can access key sustainability insights about securitized assets. This approach enables investors to make more informed decisions and effectively assess risk.,” explains Max Riedel, a researcher in SAFE’s Financial Markets Research Department and one of the paper’s authors.

Urgent need for comprehensive sustainability data

In their paper, Riedel and his co-authors emphasize the urgent need for comprehensive sustainability data, especially in the automotive sector, which has a massive impact on the EU’s carbon footprint. Their proposal is for the European Securities and Markets Authority (ESMA) to set mandatory reporting requirements for TAN and TVV as part of its disclosure regime. This policy change aims to address existing information gaps and drive the development of a standardized framework for sustainability disclosure in Auto ABS transactions.

Loriana Pelizzon, Deputy Scientific Director at SAFE and one of the paper’s authors, emphasizes the proposed solution’s transformative potential: “Transparent disclosure of sustainability data is important to leverage private capital for the green transformation. It allows investors to make informed decisions and to align their investments in auto ABS with their green preferences and may create positive feed-back loops for green auto financing.” With their proposal to replace the energy performance certificate for vehicles with the TAN and TVV, the SAFE researchers are precisely addressing the demand for standardized and comparable reporting requirements that has flowed into the consultation response from the joint associations in the securitization market.

The SAFE White Paper is a result of the project “Green Auto Securitisation” (GAS) conducted by SAFE and the securitisation epository European DataWarehouse (EDW). The GAS project with the funding code 01LA2208A was launched in the fall of 2022 under the Climate Protection and Finance (KlimFi) funding initiative from the German Federal Ministry for Education and Research, which aims at undertaking a three-year research period for the promotion of the green auto asset-backed securities (ABS) market. It intends to provide meaningful incentives for the automotive industry, as well as stakeholders and end users, to develop a framework for a green finance mechanism that supports the financing of ZLEVs through bank lending.

Download the SAFE White Paper No. 100 here

Scientific Contact

Max Riedel, Ph.D.

Prof. Loriana Pelizzon, Ph.D.

Deputy Scientific Director, Director Research Department "Financial Markets"