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ESG next step for Label after Covid-19 – ESNs, CPT in focus

An ESG section for the HTT is set to be the next addition to the Label after the introduction of a voluntary Covid-19 tab where payment holiday-related data can be disclosed, while a new chair of the ECBC’s ESN working group has been appointed as the industry body renews its efforts on ESNs and CPTs.

As discussed previously, the idea of including voluntary reporting in the Covered Bond Label harmonised transparency template (HTT) was taken up by the European Covered Bond Council (ECBC) Covid-19 taskforce, and on Tuesday of last week (9 June) an addendum tab was added to the template (which is released as an Excel spreadsheet).

The additional tab allows issuers to disclose the share of cover assets affected by payment holidays caused exclusively by the pandemic, and further a breakdown by type and duration of payment holidays. Issuers also have the option of providing further national or issuer-level information.

The addition of the Covid-19 tab represents the first time the HTT has been updated outside its usual annual update cycle, whereby changes are proposed around Springtime and confirmed in September ahead of implementation at the start of the following year.

“In the context of this unprecedented crisis, the Covered Bond Label Committee has updated the HTT via a fast-track procedure as an immediate reaction to the Covid-19 outbreak, with the aim of facilitating cross-border data comparison in a centralised manner and a harmonised format,” said Luca Bertalot, Covered Bond Label Foundation administrator and ECBC secretary general.

“When we created our taskforce,” he added, “it was immediately clear that there was a need for quantitative information on the impact of the crisis, for both policymakers and investors. The idea was then to find a format that would be useful, easy to implement, and not too complicated to harmonise across jurisdictions.”

Hélène Heberlein, managing director at Fitch and a member of the Label advisory council, welcomed the speed with which the initiative was implemented, noting that the voluntary nature of the disclosure will have helped in this respect. She said that concrete data on payment holidays should prove useful.

“The question is, how many issuers will actually use it?” she added. “We find that a lot of issuers are gathering the data and are willing to discuss it with us in calls, but when you make data publicly available it has to be vetted internally and hence takes a bit more effort to publish.”

The first such disclosures could become available towards September when Q2 HTT data will be released, according to Bertalot – Heberlein noted that issuers meanwhile having to provide cover pool data to rating agencies in time for surveillance reports required for repo eligibility purposes to be prepared and passed on to the European Central Bank (ECB) by 25 August.

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Bertalot said the tab is a temporary addition to the HTT, with its lifespan dependent upon the evolution of the pandemic and its impact.

The next addition to the HTT will be an ESG tab, if the plan is approved when the regular annual update is decided on in September, Bertalot told The CBR.

“This is the first time we will be providing ESG asset information and it will open the door to the green and sustainable world,” he said.

The HTT ESG initiative is being prepared in conjunction with ECBC-led work on an Energy Efficiency Label that will be applicable to mortgage loans, since issuers will be able to provide information on what amount of assets carry such a label, said Bertalot. However, the information will not only relate to such assets, but others within the ESG universe, he noted.

The ECBC has today (Wednesday) been holding a workshop with national authorities and the European Bank for Reconstruction & Development (EBRD) on implementation of the EU covered bond directive. Bertalot said implementation could lead to further updates to the Label, but that these are not to be decided until next year, when there is more clarity on how the directive is being implemented nationally.

“The Label committee is ready to move to ensure that the HTT is always at the top of regulatory disclosure requirements,” he added.

Tomorrow (Thursday), the ECBC’s European Secured Note (ESN) taskforce will hold a roundtable discussion chaired by Stefano Patruno, head of European regulatory policies at Intesa Sanpaolo (pictured), who last week took over from ECBC chair Boudewijn Dierick.

“We will discuss how to progress the ESN dossier in this recovery plan,” said Bertalot, “and also how it can support the European Green Deal by being a driver for making our industry greener.”

The industry body also discussed the appropriate treatment of conditional pass-through (CPT) covered bonds with the ECB in a meeting last week.

“We have of course always been very focused on this topic,” said Bertalot, “but we have reopened the debate with the ECB and are trying to highlight the importance of the structure.”

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