Structured 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.
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