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Climate-related disclosures for structured finance products are urged by the ECB and the ESAs

The European Supervisory Authorities (ESAs), along with the European Central Bank (ECB), issued a joint statement on 13 March 2023, calling for improved climate-related disclosure for structured finance products. The report emphasises the importance of investment in financial products meeting high environmental, social, and governance (ESG) standards and highlights the need for climate-related information on the underlying assets to accompany the structured finance products.

Securitisation transactions may contain assets that are directly exposed to physical or transition climate-related risks. The lack of appropriate data on the assets underlying the structured finance products poses a problem for adequately assessing and addressing climate-related risks. It impedes the classification of products and services as “sustainable” under the EU Taxonomy Regulation and Sustainable Finance Disclosure Regulation (SFDR). Therefore, the ESAs (EBA, EIOPA, and ESMA) and the ECB share the view that reporting on existing climate-related metrics needs to improve. They call on issuers, sponsors, and originators of such assets to proactively collect high-quality and comprehensive information during the origination process.

The ESAs and the ECB are committed to promoting transparency and robust disclosure requirements for financial institutions and products. The ESAs have been developing advice and Regulatory Technical Standards under the EU Taxonomy Regulation and the SFDR. Substantial efforts are already underway to improve sustainability-related transparency. The ESAs have been developing templates for voluntary sustainability disclosures for “simple, transparent, and standardised” (STS) securitisations, while the EBA provided guidance on how ESG standards could be implemented in the context of securitisation. ESMA is reviewing the loan-level securitisation disclosure templates, aiming to simplify the reporting templates where possible while introducing new, proportionate, and targeted climate change-related metrics that would be useful for investors and supervisors.

While mandatory disclosure requirements are not yet in place, the ESAs and the ECB call on all market participants to acknowledge the importance of enhanced climate-related disclosures for securitised assets.

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