ESMA publishes Consultation Paper on draft technical advice concerning the amended Prospectus Regulation as part of the Listing Act Package focusing in particular on format, content and ESG information in EU prospectuses
A) Background
On October 8, 2024, the EU Council adopted the Listing Act – a regulation amending the Prospectus Regulation (EU) 2017/1129 – which was first proposed in December 2022 and then subjected to several rounds of negotiations.1 As the legal texts will enter into force 20 days after their publication in the Official Journal of the European Union and some specific provisions are only scheduled to enter into force 15 to 18 months after that date, the EU Commission expects the majority of the provisions of the Listing Act to enter into effect in July 2026. Several provisions of the Listing Act require the adoption of level 2 measures. These will consist of technical standards developed by ESMA and adopted by the EU Commission after the corresponding legislative procedure.
On June 6, 2024, ESMA received a request for technical advice from the EU Commission on a range of topics in relation to the Prospectus Regulation and with its Consultation Paper published on October 28, 2024, ESMA presents a draft version of ESMA’s technical advice and gives specific recommendations and detailed reasons for the choice of approach.2
The scope of the technical advice to be provided by ESMA shall cover, inter alia3, and with a particular focus, the content and format of a prospectus. For the very first time, ESMA also proposes a new building block of additional information to be included in prospectuses for non-equity securities offered to the public or admitted to trading on a regulated market that promote the integration of ESG factors or the pursuit of ESG objectives. As an integral part of the Consultation Paper, ESMA provided a clean and a marked-up version of the amendments to the Delegated Regulation (EU) 2019/980 on scrutiny and disclosure (the "Delegated Regulation") supplementing the Prospectus Regulation.
B) Key takeaways from ESMA’s advice on the standardised format and standardised sequence of the prospectus, the base prospectus and final terms
The approach taken by ESMA is based primarily on a literal understanding of the Listing Act, which will amend the Prospectus Regulation. In doing so, ESMA recommends rearranging the “standard” annexes4 on equity and non-equity disclosures, which affects both format and content. Even though ESMA notes that the amendments to the Prospectus Regulation in respect to a standardized format requirement of prospectuses appear to apply to prospectuses for all types of non-equity securities, ESMA is of the view, that a standardization of the format might not work well in particular for base prospectuses that cover multiple non-equity securities with building blocks.5
This results in the following key changes: (a) The “standard” annexes for equity and non-equity disclosures follow the order specified in Annexes I, II and III of the Listing Act; (b) a mandatory order of sequences in the prospectus according to Annexes I to III of the Listing Act in conjunction with Articles 22 and 23 of the Delegated Regulation6, as applicable, and (c) the proposed disclosure in the “standard” equity and non-equity annexes is generally reduced from that required by the current EU Growth prospectus annexes, but occasionally goes beyond them in relation to non-equity, and is aimed at aligning certain disclosure requirements with what is expected under the Listing Act. For example, the period that financial information in the registration document should cover is reduced from three to two years. On this point, ESMA highlights the importance, for the sake of practicality, of this reference to the “last financial year” not being understood on the basis of a calendar year or in months. In particular because a prospectus prepared in the first quarter of 2025 may only be able to include full audited annual financial information from 2023. Accordingly, ESMA sought to ensure that no changes were made to items such as the age of financial information in the 'standard' non-equity annex that would create associated issues.
ESMA acknowledges the overall aim to streamline, standardize or reduce certain disclosure in base prospectuses as much as possible, but the attempt to fulfill these various objectives in a single disclosure framework may, in some cases, create significant difficulties. The ESMA proposed Annexes for non-equity securities therefore attempt to use the framework for the disclosure of wholesale transactions as a basis for future prospectuses for non-equity securities, while also using the existing EU Annexes for non-equity securities for growth as an upper limit. In doing so, ESMA has sought to reflect the instruction to take account of the retail market and the order of the information in accordance with Annexes II and III of the Listing Act.7
A challenge, among others, is that the different securities descriptions serve different functions. For example, the securities description for non-equity securities for wholesale places more emphasis on admission details, while the securities description for non-equity EU growth places more emphasis on offers.
That said, ESMA has – on a best-efforts basis – proposed a single framework for a non-equity securities note (but also for a potential future registration document), which attempts to take into account all elements of the Listing Act and the European Commission's call for advice. In ESMA's view, there may be practical reasons to maintain the status quo for securities prospectuses, but ESMA's recommendations attempt to illustrate what a compromise between the wholesale and EU growth annexes might look like.
In addition, a proposal is included by ESMA that allows non-equity issuers on a voluntary basis to provide entity level sustainability information in the registration document via an electronic link to their website.8 The Listing Act only requires certain entity level sustainability information in prospectuses for certain equity issuers.9 According to ESMA, such information should be accompanied by a disclaimer that the information on the website does not form part of the prospectus, unless that information is incorporated by reference into the prospectus.10 The Consultation Paper is silent on the content of the summary to the prospectus so that this information will then not have to be included in the summary as well (like certain ESG information for equity issuers under the Listing Act amendments to the Prospectus Regulation).11
C) Key takeaways from ESMA’s advice on the disclosure requirements for non-equity securities advertised as taking into account ESG factors or pursuing ESG objectives
ESMA has chosen to take its Public Statement on sustainability disclosure in prospectuses12 as a starting point for its advice since it already created a more uniform level of disclosure in prospectuses. Only in a few cases, ESMA’s proposal goes beyond the requirements in the Public Statement.
To put this into practice, ESMA developed Annex 21, which serves as a so-called “building block” and is to be used in combination with the other applicable annexes for non-equity securities. Several of the requirements in Annex 21 relate specifically to sustainability-linked bonds and so-called ‘use of proceeds’ bonds (e.g. green bonds or social bonds), including new definitions for both types of bonds to help ensure legal certainty. In this regard, to avoid any misperceptions, ESMA clarifies in the consultation paper13 and by way of introducing the new Article 21a in the Delegated Regulation that Annex 21 should also cover European Green Bonds (EU GB) under the EU Green Bond Regulation and securities that will be issued by using the voluntary pre-issuance templates of the EU Green Bond Regulation.
With regard to the upcoming EU Green Bond Standard, ESMA proposes to amend Article 26 of the Delegated Regulation so that disclosure in EUGB factsheets is – by way of an exemption to the usual approach on incorporation by reference – classified as Category C information for base prospectuses and can therefore be incorporated by reference into the final terms, i.e. it can be included by reference on an issuance specific basis and therefore at a point in time after the approval and publication of the base prospectus.
ESMA is concerned that the requirement to incorporate the relevant information from the EU Green Bond factsheet would otherwise may make it difficult for issuers to use their existing base prospectuses for the issuance of EU Green Bonds. However, in addition to this proposed amendment regarding the change of category, it should be noted that in future, under Annex 21, many of the disclosures to be made in base prospectuses will fall under Category A or B and therefore cannot be made by means of additions in the final terms. Consequently, a wide range of information gathering takes place at the base prospectus level. In addition, ESMA has considered exclusively relying on the pre-issuance disclosure for European Green Bonds and voluntary pre-issuance disclosures in an effort to try to alleviate the burden on issuers. However, ESMA considers that prospectuses relating to these types of securities are not exempted from the ‘necessary information test’ in Article 6(1) of the Prospectus Regulation, so that it is important to have a complete overview of the necessary information.
Since the Sustainable Finance Disclosure Regulation (SFDR) is also currently being reviewed, ESMA's advice that it is not appropriate to align the disclosure requirements under the Prospectus Regulation with the SFDR or the MiFID II investor preferences at this time is also significant. Therefore, it is still too early to make statements on consistency between ESG disclosures for non-equity securities and sustainability preferences and thus ESMA's advice on the disclosure requirements for non-equity securities that advertise an ESG component or have an ESG objective under the Prospectus Regulation does not yet align with the disclosure requirements under the SFDR.14
D) Outlook
Making recommendations which balance the precise wording of recitals and provisions in the Listing Act and the instructions in the EU Commission’s request for advice was challenging for ESMA. This is particularly understandable given that ESMA should also consider the range of non-standard structured products outside the so-called “plain vanilla” issuances as part of this consultation phase. Furthermore, certain difficulties may also arise with regard to special types of base prospectus structure, for example if they provide for plain and structured non-equity securities. A corresponding clarification would be helpful that such base prospectuses are also exempt from the standardization requirement.
The consultation also clearly shows how important ESG disclosure is becoming in the context of the prospectus regime and that the extent to which issuers have dealt with ESG information to date is still capable of improvement. Therefore, ESMA encourages respondents to take the concerns raised by ESMA into consideration when providing their feedback and state how they read the amendments to the Prospectus Regulation by the Listing Act, as very literal interpretations might become a source of tension when preparing prospectuses.
With the consultation paper of October 28, 2024, ESMA has laid the first foundation stone for the development of the level 2 measures. ESMA aims to submit the final drafts of the technical advice to the EU Commission in Q2 2025, after the consultation process has been completed. We will further report on these developments.
1 For the adopted but not yet officially published text of the Listing Act, see https://data.consilium.europa.eu/doc/document/PE-38-2024-INIT/en/pdf.
2 The ESMA Consultation Paper on draft technical advice concerning the Prospectus Regulation and on updating the CDR on metadata is available at https://www.esma.europa.eu/sites/default/files/2024-10/ESMA32-117195963-1276_CP_Listing_Act_Advice_-_Prospectus.pdf.
3 In addition, ESMA also provides advice on the content of the URD, on the criteria for the scrutiny of the completeness, comprehensibility and consistency of information contained in prospectuses as well as on the procedures for the approval of prospectuses and reporting requirements on metadata to reflect the changes introduced by the Listing Act.
4 ESMA's proposals are limited to the 'standard' Annexes 1, 6, 7, 11, 14 and 15 for equity and non-equity as this strict order appears more appropriate for a subset of transactions. In particular, Annexes I, II and III of the amending Regulation appear to be inspired by the format of the EU Growth prospectus.
5 See page 17 no. 20 of the Consultation Paper.
6 Compared to the previously regulated right of the issuer to choose the order of the information in the prospectus; see Articles 22 and 23 of the Mark-up Delegated Regulation.
7 See page 19 no. 27 et seq. of the Consultation Paper.
8 See page 16 no. 16 of the Consultation Paper.
9 See Art. 13(1)(f) of the Prospectus Regulation amended by the Listing Act.
10 See page 19 no. 26 of the Consultation Paper.
11 See Art. 7(6)(a)(vi) of the Prospectus Regulation amended by the Listing Act.
