ECB Responds to ESA Proposal on ESG Disclosures of STS Securitizations

ECB welcomed the joint initiative of ESAs, which aims to publish sustainability templates for STS securitizations to foster climate-related reporting for asset-backed securities (ABSs) and enhance transparency of climate-related risks for investors. In its response, ECB states that a comprehensive and more consistent data on the climate-related risks of ABSs and the underlying assets would help to incorporate climate-related considerations into the monetary policy framework of the Eurosystem. ECB notes that climate-related reporting templates should aim for consistent treatment of different financial instruments backed by similar types of collateral. Also, further legislative and/or regulatory action should aim to ensure broader adoption of climate-related disclosure, irrespective of the specific type of financial instrument or label. In particular, the proposed templates could be extended to cover non-STS ABSs, to encourage and enhance transparency regarding financial instruments backed by the same types of asset. Having consistent and harmonized templates for different asset classes would avoid an unwarranted proliferation of inconsistent disclosure standards, foster comparability across asset classes for investors, and facilitate equal treatment of different asset classes by regulatory authorities. 

ECB also notes that the proposed standards for STS securitizations could explain more clearly how originators should treat missing data. Data availability will constitute a major challenge for originators of ABSs that decide to use the proposed STS sustainability templates. This issue is likely to become less acute as more climate-related information on new loans is collected at the time of origination. To encourage a broad-based improvement in data availability, the draft standards could explain in more detail how originators are expected to deal with missing data for existing loans in securitized portfolios. One option would be for originators to report the percentage of underlying exposures for which no data are available, ideally distinguishing between different reasons for the absence of data, as is currently done with the templates for loan-level data (underlying exposures) that are maintained by the European Securities and Markets Authority (ESMA). Another option would be to allow for estimated data and ask originators to disclose the percentage of underlying exposures for which data underpinning the principal adverse impact (PAI) indicators have been estimated and to disclose details of their estimation methodology. This would mirror the approach pursued by the European Banking Authority (EBA) in its implementing technical standards for Pillar 3 disclosure requirements on environmental, social and governance-related (ESG) risks, but it could result in less accurate information.

Related Link: ECB Response (PDF)

Keywords: Europe, EU, Banking, STS Securitization, Pillar 3, Basel, Climate Change Risk, Disclosures, Securitization Regulation, ESG, Reporting, ESAs, ECB