Authorities push for tougher disclosures on securitised assets

Authorities, disclosures, assetsStructured products will face stricter sustainability disclosure requirements after pressure from European regulators to tighten standards in the industry.

A joint statement by the European Supervisory Authorities (ESAs) and the European Central Bank (ECB) has stated that products built around structured finance need to disclose climate-related information on the underlying assets.

The regulators are pushing for the development of disclosure standards for securitised assets through “harmonised climate-related data requirements”.

They note that structured products 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,” the joint statement said.

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

The regulators added that the lack of climate-related data on the assets underlying structured finance products “not only poses a problem for properly assessing and addressing climate-related risks, but also impedes the classification of products and services as sustainable under the EU Taxonomy Regulation and Sustainable Finance Disclosure Regulation”.

Furthermore, the ECB noted that enhanced climate-related disclosure requirements for securitised assets are also essential to the ECB, given that asset-backed securities constitute “one of the most important asset classes mobilised by counterparties as collateral in Eurosystem credit operations”.

The ECB asset-backed securities purchase programme has also become one of the largest investors in such assets in the euro area, making it doubly important to ensure securitised products provide clear ESG-related disclosures.

© 2023 funds europe

Upcoming webinars

Fund oversight and compliance are crucially important features of the modern investment landscape. Our panel discussion will examine current challenges and assess why it's time to integrate, automate and digitise.

Approaching the 2030 Sustainable Development Goals midpoint, Clarity AI analysis reveals a mismatch: a $3.7T gap, urging investors to bridge it and align sectors for global progress.