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Consultation on Sustainability and STS Securitisations

AUTHORs: William Foot  Services: Finance and Capital Markets, ESG DATE: 20/05/2022

On 2 May 2022, the Joint Committee of the European Supervisory Authorities (EIOPA, ESMA and EBA) published a consultation paper on draft Regulatory Technical Standards (RTS) for the disclosure of information in respect of sustainability factors for simple, transparent and standardised (STS) securitisations.

The Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) (SFDR) requires parties to consider the effects of investment decisions on sustainability and to disclose how their policies take those effects into account. However, securitisation is not a “financial product” for the purposes of SFDR, and considerations and disclosures of the effects of investment decisions on sustainability factors are therefore at present less developed in the securitisation sector. The new draft RTS aim to standardise the type and presentation of information an STS originator may choose to disclose about the adverse effects on sustainability factors of assets financed by underlying exposures.

A high degree of consistency with the SFDR disclosure framework has been sought; an SFDR template was taken as the model for disclosure in these draft RTS. The new draft RTS necessarily take into account the specific characteristics of securitisations, for instance:

  • section 4.1 on the format of disclosure;
  • section 4.2 on sustainability policies of the originators and asset selection criteria; and
  • section 4.3 on the principal adverse impacts (PAI) indicators to be reported in the annual sustainability impacts statement (namely, the share of underlying exposures financing assets which are not classified as environmentally sustainable).

These draft RTS also take account of securitisation repositories (SR), which allow for central points of access and facilitate validation and comparison of the disclosed information. Disclosure is made through a “principal adverse impact statement” included in the annexed template and the information is made available by the SR in the same way as other documents such as the prospectus.

The draft RTS draw on definitions and concepts set out in Commission Delegated Regulation (EU) 2021/2178 supplementing the Taxonomy Regulation, which specifies disclosure requirements under Article 8 of the Taxonomy Regulation. The delegated regulation defines green loans or assets for the purposes of calculating a green asset ratio (GAR) and green key performance indicators (KPIs). The draft RTS use the definitions set out in Annex 5 of the delegated regulation for the purposes of the PAI indicator and also take into account the information that a credit institution needs to be able to classify individual loans or assets in accordance with the GAR and KPIs. This is intended to ensure consistency in the type and format of information collected by an originator for different purposes.

The deadline for responses to the consultation is 2 July 2022.

The consultation is an important step in integrating securitisation into the wider sustainability field. We will be monitoring its progress, as well as other ESG-related developments in the securitisation space.

For further information, please contact William Foot, Richard Kelly, Christian Donagh, Turlough Galvin, Daniel Peart, Alan Keating, Vincent McConnon, Alan Bunbury or your usual Matheson contact.