Insights Blog

The European Supervisory Authorities (ESAs) have submitted final draft regulatory technical standards (RTS) to the European Commission setting out ESG disclosures for STS securitisations (both non-ABCP traditional and on-balance sheet) where the underlying exposures are residential loans, auto loans and leases.

For these types of STS securitisations, the EU Securitisation Regulation (EUSR) requires the originator and sponsor to “publish the available information related to the environmental performance” of the underlying assets as part of their transparency disclosures.  In 2021, as part of the Capital Markets Recovery Package, the EUSR was amended to let originators opt to publish “the available information related to the principal adverse impacts” (PAI) of the underlying assets instead. The ESAs were tasked with preparing RTS on the content, methodology and presentation of that PAI information based (to the extent possible) on those set out in the RTS under the Sustainable Finance Disclosures Regulation (SFDR).

The ESAs reiterated that these RTS are not a framework for sustainable securitisation, but are instead designed to give originators the option to disclose PAIs of underlying assets in certain STS securitisations using SFDR-based reporting (with some PAI indicators (those relating to motor vehicles) drawn from the Climate Delegated Act under the Taxonomy Regulation as there is no equivalent in the SFDR).

Once the RTS come into force, originators can still decide to continue to comply with the original disclosure requirements (on environmental performance) instead, rather than opting for PAI disclosure.

Publication of the final RTS follows a 2-month consultation by the ESAs in mid-2022.  As part of that consultation, they sought views on whether the optional PAI disclosure framework could be extended to STS securitisations with other types of underlying exposures.  Feedback was mixed, so the framework is not being extended beyond residential loans, auto loans and leases at the moment. Other key points highlighted by the ESAs in response to feedback received as part of the consultation included:

  • No grandfathering/transitional provisions have been included because originators can simply continue to disclose environmental performance information in line with the original requirement until such time as they are in a position to switch to the PAI disclosure regime if they wish to do so.
  • On frequency of reporting, it will remain quarterly in line with the quarterly reporting obligation for information on underlying exposures under Article 7(1)(a) of the EUSR (and that information should also be made available pre-pricing).
  • Supervision of compliance with the requirements of the optional disclosure regime will rest with the competent authority responsible for supervising compliance with the STS provisions of the EUSR.
  • If an originator selects the optional disclosure regime, the PAI information must be disclosed in accordance with the RTS.  The RTS distinguish between (a) the publication of information on mandatory indicators, and (b) the publication of information on additional indicators.  For additional indicators, originators will only be required to report (where information is available) on one social or governance-related factor, and one environmental or climate-related factor.
  • The original proposal for a mandatory non-green asset ratio indicator for all asset classes covered by the RTS was not carried through into the final form RTS in light of feedback received by the ESAs to that point in 2022 consultation.

The Commission is expected to endorse the RTS within 3 months.  They will come into force 20 days after they are published in the Official Journal and originators of in-scope STS securitisations who wish to disclose PAIs in place of environmental performance may opt to do so once they are in a position to comply with the RTS.