Joint ESAs-ECB Statement on disclosure on climate change for structured finance products

The European Supervisory Authorities and the ECB have published a joint statement concerning the disclosure of climate change information in respect of structured products. As investment in financial products meeting high environmental, social and governance (ESG) standards becomes increasingly important at the EU level, the statement may serve as an important indicator in relation to the direction of travel. The EU Action Plan on Sustainable Finance and EU's Renewed Sustainable Finance Strategy has seen the EU Sustainable Finance Disclosure Regulation and the Taxonomy Regulation (both discussed in the joint statement) impose requirements for a wide-range of firms and a wide range of products. The EU Green Bond Standard Regulation (see briefing here) is also reaching the final stages of the EU legislative process. The ECB and the ESAs consider that the scarcity of climate-related data on assets underlying structured finance products makes it difficult to properly assess and address climate-related risks and prevents classification of products and services as sustainable under the EU Taxonomy Regulation and the SFDR.

Although the majority of the statement appears geared towards the securitisation market, (in light of the 2022 consultation paper by the ESAs on the disclosure of information concerning sustainability factors of assets financed by underlying exposures of securitisations),  the statement may also provide useful information for those working with other products. The statement argues that introduction of disclosure requirements for securitisations may become also relevant for similar funding instruments backed by the same type of underlying assets, such as covered bonds, arguing that consistent and harmonised requirements for these instruments are necessary. 

Under the “SFDR”,  financial market participants must disclose the extent to which their financial products with sustainable characteristics or objectives invest in sustainable and environmental assets. Although securitisations are not “financial products” covered by SFDR, they are indirectly subject to SFDR through the entity-level disclosure requirements (Principal Adverse Impact indicators cover all investment decisions, including investments into securitisations) and when investments by financial products in securitisation positions result in investments in Taxonomy-aligned economic activities. The European Green Bond Regulation could also require that any green bond fund environmentally sustainable economic activities that align with the EU taxonomy. Likewise, covered bonds are not “financial products” under the SFDR, and so are not subject to the financial product disclosures rules set out the SFDR but are “investments” under Article 4 Principal Adverse Impact disclosures at entity level. The statement also provides that covered bonds related ESG-disclosure would also be regulated by Article 14 of the Covered Bond Directive.  The approach adopted in the statement could arguably extend to other funding instruments such as structured products. It is clear that this is an area to watch.