Realistic View of European Securitizations Necessary // ZEW Researchers Call for Improved Conditions for Green Investments

ZEW Researchers Call for Improved Conditions for Green Investments

In the face of pressing global challenges, especially climate change, companies need to invest more in transformational projects. Against this background, a better integration of the banking system and capital markets in Europe is crucial. The mobilisation of private financial resources, for example through securitization, is essential for this economic transition. Securitization is the bundling of financial claims or assets into tradable securities.

The new EU Commission has an important task, i.e. to take forward the Capital Markets Union (CMU). Efforts to strengthen European capital markets, including securitization markets, have made little progress in recent years. A study by ZEW Mannheim examines the market potential of securitizations in Europe and finds that current expectations are unrealistically high. The authors emphasise that while securitization is important for better linking the European banking system to the capital markets, this alone cannot drive the green transition. Policymakers should therefore focus on creating the necessary conditions for investments in the real economy.

"Compared to green bonds, green securitizations offer institutional investors the opportunity to directly finance green projects. This is particularly interesting in terms of climate risk management and climate reporting. However, it is questionable whether banks will want to securitize and sell green loans in the short to medium term. First, banks need to become greener themselves. Second, selling loans via securitization is only attractive for banks if the lending opportunities exceed what they can manage with their own equity capital," says Dr. Frank Brückbauer, a researcher in ZEW's "Pensions and Sustainable Financial Markets" Unit. "To accelerate the green transition, policymakers must first encourage the necessary private real investments by creating a favourable economic environment and the right incentives, such as appropriate CO₂ prices or subsidies for developing green technologies. The financial sector will then provide the necessary financing," explains Dr. Karolin Kirschenmann, deputy head of ZEW's "Pensions and Sustainable Financial Markets" Unit.