European Commission adopts delegated regulation relating to sustainability disclosures for STS securitisations

On 5 March 2024, the European Commission adopted a delegated regulation that will supplement the EU Securitisation Regulation with regulatory technical standards ("RTS") in relation to simple, transparent and standardised ("STS") securitisations where the underlying exposures are residential loans or auto loans or leases. The RTS specify the content, methodologies and presentation of information related to the principal adverse impacts ("PAIs") of assets financed by the underlying exposures on sustainability factors for (i) non-asset-backed commercial paper ("non-ABCP") traditional STS securitisations and (ii) STS on-balance-sheet securitisations.

Background

The Joint Committee of the European Supervisory Authorities ("ESAs") consulted on draft RTS in May 2022. Once the consultation period closed in July 2022, the ESAs analysed the responses and published a final report on the draft RTS in April 2023. The ESAs subsequently submitted its final draft RTS to the European Commission in May 2023. The RTS in the adopted delegated regulation (discussed herein) do not substantially differ from the final draft submitted to the European Commission in May 2023.

The ESAs aim in introducing the RTS is that they will standardise the type and presentation of information an originator may elect to disclose about the PAIs of assets financed by underlying exposures on socio-environmental factors. It is hoped that investors will, therefore, have more comparable and complete information to make informed decisions on the sustainability factors of their investments.

The RTS are not intended to create a framework for "sustainable" or "green" securitisations, but are aimed at enabling originators to disclose PAIs of STS securitisations using reporting which is broadly aligned with the EU Sustainable Finance Disclosure Regulation ("SFDR"). Although the SFDR is not directly applicable to securitisations, it is indirectly applicable through the entity level disclosure requirements (as PAI indicators under the SFDR cover all investments, including investments into securitisations). For further information about the SFDR, read our alert here.

Application

The RTS will apply to (i) non-ABCP traditional securitisation and (ii) STS on-balance-sheet securitisation, where the underlying exposures are residential loans, auto loans or leases.

The disclosure regime under the RTS will be voluntary, meaning that in-scope originators will be able to elect to comply with either (i) their original disclosure requirements set out in Articles 22(4) and 26d(4) of the EU Securitisation Regulation, or (ii) the disclosure requirements set out in the RTS.

Disclosure requirements

The RTS will require originators to disclose the information related to PAIs on sustainability factors in the format set out in Tables 1, 2 and 3 of the RTS Annex. This requires originators to disclose (among other things):

• Climate and other environment-related indicators, including (i) exposure to fossil fuels used for heating or electricity generation, (ii) exposure to energy-inefficient real estate assets, (iii) exposure to vehicles that do not comply with relevant emission thresholds, (iv) electric vehicles batteries recycling efficiency and (v) exposure to vehicles with CO2 emissions higher than the EU fleet-wide targets; and
• Social and employee, respect for human rights, anti-corruption and anti-bribery matters.

Where information relating to any of the PAIs on sustainability factors are not readily available, originators will need to provide details of the best efforts used to obtain that information.

Originators must make the disclosures on a quarterly basis, pursuant to Article 7(1)(a) of the EU Securitisation Regulation, and must make them available in a searchable electronic format. In respect of public deals, originators must also provide the disclosures via a securitisation repository.

Next steps

The European Commission's adopted text for the delegated regulation will now be examined by the European Parliament and the Council of the European Union. Once the text is agreed, it will be published in the Official Journal of the European Union and will enter into force 20 days later. The delegated regulation would then take effect six months after entering into force.