The European Supervisory Authorities (ESAs) – the European  Insurance and Occupational Pensions Authority (EIOPA), the European Securities and Markets (ESMA) and the European Banking Authority (EBA) – together with the European Central Bank (ECB), have called for the development of disclosure standards for securitised assets through harmonised climate-related data requirements.

Currently, there is a lack of climate-related data on the assets underlying structured finance products, the ESAs said. This poses an obstacle for the classification of products and services under the EU taxonomy regulation and the Sustainable Finance Disclosure Regulation (SFDR) and hinders the proper assessment and management of climate-related risks.

As investment in financial products meeting high ESG standards is increasingly important in the European Union (EU), it has also become a priority for structured finance products to disclose climate-related information on the underlying assets.

ESMA, with the contribution of EBA, EIOPA and the ECB, is hence working towards enhancing disclosure standards for securitised assets by including new, proportionate and targeted climate change-related information.

In a joint statement, the ESAs and the ECB also call 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.

Securitised assets

Securitisation transactions are often backed by assets that could be directly exposed to physical or transition climate-related risks, such as real estate mortgages or auto loans.

Since the value of these underlying assets could be affected by climate-related events, the ESAs and the ECB share the view that the reporting on existing climate-related metrics needs to improve, and that additional metrics are necessary.

Additional climate-related data will allow investors to better identify climate change-related risks while avoiding overreliance on estimates from external sources.

The ESAs are committed to promoting transparency and robust disclosure requirements for financial institutions and financial products. The ESAs have been developing advice and Regulatory Technical Standards under the EU taxonomy regulation and the SFDR.

They are also currently reviewing the SFDR Delegated Regulation to enhance ESG disclosures by financial market participants, including to require additional disclosures on decarbonisation targets.

The statement noted that sustainable finance is a key priority of the ESAs, and “further deepening the integration of ESG factors across their activities will be a focus for their action in the coming months and years”.

Enhanced climate-related disclosure requirements for securitised assets are also essential to the ECB. Assets-backed securities constitute one of the most important asset classes mobilised by counterparties as collateral in Eurosystem credit operations. Moreover, the Eurosystem, with its assetbacked securities purchase programme (ABSPP), has also become one of the largest investors in such assets in the euro area.

In July 2022 the ECB announced that it was taking further steps to include climate change considerations in its purchase programmes and collateral framework with the aims to better take into account climate-related financial risk in monetary policy implementation and – within its mandate – to support the green transition of the economy in line with the EU’s climate neutrality objectives.

In this context, the ECB is committed to acting as a catalyst, engaging closely with the relevant EU authorities to support better and harmonised disclosure of climate-related data for assets mobilised as collateral.

To read the digital edition of IPE’s latest magazine click here