Joint ESAs/ECB Statement calls for enhanced climate related disclosure for structured finance products

The European Supervisory Authorities (ESAs) and the ECB have issued a joint statement highlighting that, as investment in financial products meeting high ESG standards is increasingly important in the EU, it has also become a priority for structured finance products to disclose climate-related information on the underlying assets. The joint statement:

• Highlights that ESMA, with the contribution of EBA, EIOPA and the ECB, is working towards enhancing disclosure standards for securitised assets by including new, proportionate and targeted climate change-related information.
• Calls on issuers, sponsors and originators of such assets at EU level to proactively collect high-quality and comprehensive information on climate-related risks during the origination process. This call for improved disclosure concerns all funding instruments that are backed by the same type of underlying assets.

Currently, there is seen to be a lack of climate-related data on the assets underlying structured finance products. This poses an obstacle for the classification of products and services under the EU Taxonomy Regulation and the SFDR and hinders the proper assessment and management of climate-related risks.  The Statement sets out the joint efforts of the ECB and the ESAs to facilitate access to climate-related data with a view to improving sustainability-related transparency in securitisations and to promote consistent and harmonised requirements for similar instruments:

• The ESAs have been developing templates for voluntary sustainability-related disclosures for “simple, transparent and standardised” (STS) securitisations;
• in March 2022, the EBA also provided guidance on how ESG standards could be implemented in the context of securitisation;
• ESMA is undertaking a review of the loan-level securitisation disclosure templates, with a view to not only simplifying the reporting templates where possible, but also considering (with engagement with originators/investors/regulatory bodies) whether new, proportionate and targeted climate change-related metrics should be introduced that will be useful for investors and supervisors.

While mandatory disclosure requirements are not yet in place, the ECB and the ESAs are nonetheless calling on originators to already collect, at the time of loan origination, the data that investors need to assess the climate-related risks of the underlying assets.

Fostering a level playing field by promoting consistent and harmonised requirements for similar instruments 

Finally, the introduction of new climate change-related disclosure requirements for securitisations may become also relevant for similar funding instruments backed by the same type of underlying assets, such as covered bonds. The ESAs and ECB consider that consistent and harmonised requirements for these instruments are necessary for properly assessing and addressing climate-related risks and would ensure a level playing field across similar asset classes, foster comparability for investors and facilitate equal treatment by EU supervisors.  They have expressed their commitment to supporting the comparability of future disclosure requirements within their respective mandates.

The joint statement can be seen here