Platform on Sustainable Finance report on investing for transition benchmarks (ITB)

The Platform on Sustainable Finance, an advisory body to the European Commission, has published a report that proposes two voluntary benchmark labels (investing for transition benchmarks, with and without exclusions) to highlight the pivotal role the taxonomy can play in shaping climate and environmental benchmarks as well as in transition finance. While the proposed benchmarks may be better suited for thematic use and currently face data challenges, particularly regarding green capital expenditures (CapEx) outside Europe, they remain open to alternative approaches and modifications. Innovation in this area is essential to effectively channel capital towards sustainable investments and achieve the transition to a net zero, resilient, circular, and environmentally sustainable future.

The investing for transition benchmarks, with and without exclusions, are inspired by the success of EU Paris‑aligned benchmarks (PAB) and the success in the growth of taxonomy‑aligned capital expenditures. Since 2019, Paris‑aligned benchmarks and climate transition benchmarks (CTBs) have been instrumental in driving a low‑carbon transition in financial markets. By guiding investments towards environmentally sustainable options, PABs help steer companies towards a collective decarbonisation path that aligns with the Paris Agreement's target of capping global warming at 1.5°C above pre‑industrial levels. The ITB proposal in this report builds on the experience and success of the PAB/CTB labels and further explores how benchmarks can channel funding towards entities that are investing in their transition efforts.

The purpose of the report is to

• show how a significant level of comparability of taxonomy‑based capex‑aligning benchmark methodologies could be achieved while leaving benchmark administrators with an important level of flexibility in designing their methodology
   
• provide investors with an appropriate tool to align the taxonomy with their investment strategies
   
• increase transparency on investors’ impact, specifically regarding climate change and the environmentally sustainable capital expenditures required for the energy transition; and disincentivise greenwashing

With this work the Platform aims to support the development of innovative tools that contribute to the decarbonisation and greening of investment portfolios.