ESAs Joint Consultation Paper on sustainability disclosures for STS securitisations
09 May 2022
The ESAs (European Supervisory Authorities) have published yet another paper (this one dated 2 May) – a joint consultation paper on sustainability disclosures for STS securitisations. Comments are to be received on the paper by 2 July 2022.
A link to the Joint Consultation Paper is below:
Essentially, the proposal is to impose an obligation , via yet another set of RTS, on originators of securitisations to disclose information about the principal adverse impacts (PAI) on sustainability factors of the assets financed by the underlying exposures of securitisations. Disclosure would be achieved by use of a standalone "Principal adverse impact statement " for which there is a template in the Annex to the draft RTS and is closely aligned to similar for the draft RTS for SFDR (the Sustainable Finance Disclosure Regulation).
There are proposals for specific disclosures relating to a number of asset classes, including auto loans/ leases, residential real estate, commercial real estate, corporates, SMEs and trade receivables . The amount of information required is quite granular and spans issues such as carbon footprint , renewable energy consumption, emissions, pollution, bio-diversity, compliance with UN principles, board gender diversity etc.
According to the paper, the overall objective of the draft RTS includes ensuring that originators are able to disclose relevant information about the environmental adverse impact in a way which is consistent and comparable to the disclosures made available under SFDR .
According to the paper,
"This in turn will allow investors to undertake consistent due diligence of sustainability factors when investing in different types of assets. End-investors should be able to rely on the PAI disclosures made by financial market participants to explain sufficiently clearly how they consider adverse impacts."
Obviously in order for any of this to apply in the UK in due course , it would have to be incorporated into English law separately, since the UK is no longer subject to the (EU) principle of subsidiarity, however any STS issues required to be EU compliant would of course likely need to comply as a result of investor requirements.
Market participants are encouraged to engage with the consultation process and address the questions raised by the ESAs as part of this latest consultation, as the introduction of additional disclosure templates and the requirement to gather further information for an affected securitisation issue is likely to involve an increase in the due diligence exercise for transaction counterparties , as well as to impact the timing and costs for any such issues once the new requirements are adopted.
Authors: Martin Kaiser, Partner; Agathe Motte, Partner; Jonathan Walsh, Partner; Thomas Picton, Partner
