SFA Research Corner: Driving Towards Decarbonization: Connecting Auto ABS to Climate Change

Green auto ABS deals represented $3.5 billion of the $29 billion issuer-designated ESG securitizations in 2021. Proceeds from these deals financed the purchase of green vehicles at Tesla and Toyota, the inaugural issuers of green auto ABS deals, by financing low- or zero-GHG-emissions vehicles. At year-end, the EPA finalized federal GHG emissions standards for passenger cars and light trucks that are the “strongest vehicle emissions standards ever established for the light-duty vehicle sector,” that will result in avoiding more than 3 billion tons of GHG emissions through 2050. Rating agencies have been including GHG components in their credit analysis of auto ABS pools including the impact that the shift to decarbonized vehicles will have on vehicle valuations and thus on the credit performance of auto ABS.

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