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KBRA ESG KNOWLEDGE HUB

EPA Greenhouse Gas Scores Shed Light on Auto Loan ABS ESG

Air pollution from exhaust fumes
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Environmental, social, and governance (ESG) factors have become increasingly important considerations across the securitization market. However, objective and quantifiable metrics to help assess securitized assets against an ESG framework have been elusive. Our ongoing ESG research suggests that the Environmental Protection Agency’s (EPA) vehicle greenhouse gas (GHG) score[1] may offer a new approach. By mapping the GHG score to make/model/year information provided in auto loan asset-level disclosures, we can calculate an average GHG score for each loan pool, providing an insightful data point regarding the relative environmental impact of each securitization. Some of the key takeaways of our analysis are as follows:

Key Takeaways

  • Securitizations issued by Asian manufacturers typically had a higher average GHG score (lower emissions) compared to those issued by their U.S. counterparts, partly driven by a lower mix of financed SUVs and trucks.

  • Lower income borrowers tended to finance vehicles with higher GHG scores, as they were more likely to finance sedans compared with more affluent borrowers, which partly explains why non-prime ABS securitizations often scored higher than their prime counterparts.

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[1] We provide a brief overview of the EPA’s GHG score in the Mapping Specifics section. For more information, please visit:

https://www.epa.gov/greenvehicles/greenhouse-gas-rating.

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