The Commission Delegated Regulation (EU) 2024/1700 supplementing Regulation (EU) 2017/2402 with regard to regulatory technical standards ("RTS") was adopted on June 18, 2024. These RTS set out the content, methods and presentation of information in relation to the principal adverse impacts ("PAIs") of the assets financed by the underlying exposures on sustainability factors for securitizations and the new rules will enter into force on 8 July 2024. ESG STS disclosure is a key feature of the EU's objectives to promote sustainable finance and steer capital flows towards sustainable activities.
The original Securitization Regulation (Regulation (EU) 2017/2402), which was already supplemented in 2021 by Regulation (EU) 2021/557 with further options for disclosure of PAIs, provided in Article 22 (4) for a provision regulating the disclosure of information on the environmental performance of the underlying assets. Based on the task assigned to the EU Commission in the Securitization Regulation to draft RTS that originators must comply with if they choose to disclose PAIs instead of environmental performance information, the so-called ESG STS Disclosure RTS were recently published, which contain corresponding disclosure templates (for further information on the background to the ESG STS disclosures, read our earlier update here).
As part of the ESG STS disclosure, the following information must be disclosed in accordance with Article 2 in conjunction with Tables 1 to 3 of the RTS:
- Summary (maximum 2 DinA4 pages):
- a summary of the transaction, the issuer's name and legal entity identifier (LEI), the International Securities Identification Number (ISIN), the period to which the disclosure relates, and
- for each type of asset in the securitization pool, the current principal balance of the underlying exposures.
- Climate and environmental indicators (E): Depending on the
asset type, these indicators can include exposure to:
- fossil fuels, energy-inefficient real estate, vehicles which fail to meet air pollution thresholds and standards, assets with a low recycling rate, and
- the recycling efficiency of batteries in electric cars.
- Social and governance indicators (S&G): Originators should report on at least one social or governance-related factor. This could relate to employee matters, respect for human rights or anti-corruption and anti-bribery issues.
When complying with the disclosure requirements of the Securitization Regulation and the RTS, in accordance with the ESG-STS Disclosure, the following must be considered in particular:
- in accordance with Article 1(3) of the RTS in conjunction with Article 7 of the Securitization Regulation, the originator of a securitization shall provide the information to the holders of securitization positions, the competent authorities and, upon request, to potential investors;
- the following should be noted and has been highlighted in the recitals of the RTS: According to Article 7(2) in conjunction with Article 7(1)(a) of the Securitization Regulation, information on securitizations for which a prospectus is to be drawn up must be made available through a securitization repository registered with ESMA. In order to facilitate the tracking of the information on the main adverse effects provided through this securitization repository, originators should use a position code corresponding to one of the codes listed in Table 3 of Annex I to Commission Delegated Regulation (EU) 2020/1224;
- quarterly reporting: originators shall provide the information required under this Regulation in accordance with the conditions set out in Article 7(1)(a) of the Securitization Regulation. Sustainability information on the underlying assets is part of the disclosure requirements under Article 7(1)(a) of the Securitization Regulation and must therefore be disclosed on a quarterly basis; and
- availability: Originators shall make the information required under this Regulation available in a searchable electronic format.
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