No green label, no problem
Toyota Motor has long been a trailblazer in the sustainable capital markets, having issued the world’s first green auto securitisation through its US captive finance arm Toyota Motor Credit Corp in 2014. It was a rare instance of the US being ahead of Europe in establishing a new green asset class.
Much has changed in the decade since. Concerns about so-called greenwashing have become more widespread and well-understood. The European Union has set out its long-awaited taxonomy for sustainable activities. The International Capital Market Association has published guidance on the types of securitisation that can qualify as green and how they should be marketed.
In 2023, Toyota showed it was fully up to speed with the latest developments, though paradoxically it did so by choosing not to attach a green label to Koromo Italy, its debut public auto ABS in Europe, which was backed by a pool of contracts almost entirely on plug-in hybrid cars.
The approach puzzled some observers. “I’m surprised they’re not using that as a marketing tool,” said a banker away from the deal. “I’m pretty sure it would definitely help the marketing to some big clients who will have some ESG targets.”
But it was a shrewd move, and the right decision. Although plug-in hybrids emit smaller amounts of greenhouse gases than vehicles with conventional internal combustion engines, they will cease to qualify as sustainable investments under the EU’s green finance taxonomy from 2026, according to sources. Toyota’s decision not to try to apply a green label was forward-looking, refreshingly honest and sets a high standard for the rest of the market.
It also did not appear to hurt demand for the bonds, which fairly flew off the shelves despite the collateral being located in Italy, a jurisdiction that does not appeal to the widest range of investors, in part due to the effective Double A ratings cap on the senior notes. The offering was 2.2 times subscribed at the final tranche size of €470m, which sole arranger Citigroup had increased from initial expectations of €350m.
The strong interest may have been helped by the fact that many market participants and even some trade publications were ignoring the lack of label and calling it Europe’s first green auto ABS anyway.
No one is complaining, though, as the bonds have been among the best performers of the year. Having been priced at 80bp in February, the deal was trading above 100.1 in November, implying a discount margin of 70bp, according to one trader. “It’s one of the tightest names in the space,” he said.
