In the action plan: financing sustainable growth, published in March 2018, the European Commission announced forthcoming measures to enhance the ESG transparency of benchmark methodologies and an initiative to put forward standards for the methodology of low-carbon benchmarks in the Union. To achieve these objectives, the action plan lists a series of actions which should be implemented by 2019. The Technical Expert Group (TEG) on sustainable finance was set up in July 2018 to assist the Commission in the implementation of the action plan and the proposed regulation on climate benchmarks.
The Commission put forward in May 2018 a proposal for a regulation creating two type of low carbon benchmarks and requiring environmental, social and governance (ESG) disclosure requirements for benchmarks.
Following the legislative process, Regulation (EU) 2019/2089 of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU climate transition benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks was published in the Official Journal on 9 December 2019, and entered into application on 30 April 2020.
The Technical Expert Group on sustainable finance (TEG) was set up in July 2018 to assist the Commission in the implementation of the action plan and the regulation, in particular the minimum standards for EU climate transition and EU Paris-aligned Benchmarks, and the content and form of the ESG disclosure requirements. The TEG published its final report in September 2019 followed by a complementary handbook in December 2019.
Following publication of this report and handbook, the Commission published in April 2020 the draft delegated acts for public consultation.
On 17 July 2020, the European Commission adopted new rules setting out minimum technical requirements for the methodology of EU climate benchmarks. The delegated acts were published in the Official Journal of the European Union on 3 December 2020 and entered into application on 23 December 2020.
You will find below further information on the work conducted by the TEG.
TEG interim report
On 18 June 2019, the TEG published its report on climate benchmarks and benchmarks’ ESG disclosures.
The report recommends a list of minimum standards for the methodologies of EU Climate Transition and Paris-aligned benchmarks addressing the risk of greenwashing, and disclosure requirements to improve transparency and comparability of information across benchmarks not only regarding climate-related information but also on a variety of ESG indicators.
A 2-pager summarising the key aspects of the report was also published.
More on the interim report:
- Press release
- Interim report on EU climate benchmarks and benchmarks’ ESG disclosures
- Summary of the interim report on EU climate benchmarks and benchmarks’ ESG disclosures
- Factsheet: Financing sustainable growth
Call for feedback
The interim report was accompanied by a call for feedback that ran until the end of July 2019.
TEG final report
On 30 September 2019, the TEG published its final report on climate benchmarks and benchmarks’ ESG disclosures.
The final report recommends a list of minimum technical requirements for the methodologies of ‘EU Climate Transition’ and ‘EU Paris-aligned’ benchmarks, with the objective to address the risk of greenwashing. The report also recommends a set of Environmental, Social and Governance (ESG) disclosure requirements, including the standard format to be used for the reporting. Those aim to improve transparency and comparability of information across all benchmarks.
Below please find the report and the 2-pager that summarises the key aspects of the final report.
The final report will serve as a basis for the Commission for the drafting of delegated acts in accordance with the empowerments laid down in the amending regulation to Regulation (EU) 2016/1011.
More on the final report:
- Press release
- Final report on EU Climate Benchmarks and Benchmarks’ ESG Disclosures
- Summary of the final report on EU Climate Benchmarks and Benchmarks’ ESG Disclosures
On 20 December 2019, the Technical Expert Group on Sustainable Finance (TEG) published a Handbook on Climate Benchmarks and benchmarks’ ESG disclosures. The Handbook follows on the publication of the TEG final report on Climate benchmarks that was published on 30 September 2019. The aim of the Handbook is to clarify those recommendations put forward by the TEG and to respond to frequently asked questions from the market.
Minimum technical requirements
In order for benchmarks to be labelled as EU Climate benchmarks, their allocation to the sectors that highly contribute to climate change should not be less than the exposure of their underlying investable, the Greenhouse Gas (GHG) intensity will have to be significantly lower than that of the investable universe, they will have to reduce their carbon emissions from one year to the other, and exclude assets that significantly harm ESG objectives.
The new legislation also lays down a number of ESG disclosure requirements for benchmark administrators, including the disclosure on the alignment with the Paris agreement. The new rules will further contribute to an increased level of transparency and comparability on the products offered to the public.
More on the minimum technical requirements:
- Press release
- New rules setting out minimum technical requirements for the methodology of EU climate benchmarks
Study on feasibility, minimum standards and transparency requirements of an EU ESG benchmark Label
The European Commission is exploring the possibility of introducing a new label which encompasses all Environmental, Social and Governance (ESG) pillars. This builds on the success of EU Paris-aligned benchmarks and EU climate transition benchmarks, which incorporate climate objectives related in particular to greenhouse gas emission reductions and the transition to a low-carbon economy. The objective of such an EU ESG benchmark label would be to bring more clarity to the market, meet the demand of asset managers and investors, channel capital flows towards more sustainable investments, and further help tackle ESG-washing.
A study is currently being carried out by a contractor. This study will provide an extensive view of the existing ESG-related benchmarks market, highlighting shortfalls and best practices. The study will inform the European Commission about possible features for a new EU ESG benchmark label that would become a key lever to align investments with long-term sustainability considerations. Many investors are currently relying on so-called ESG-benchmarks to justify the sustainability-related feature of their portfolio or of the investment products they make available. However, the comparability and reliability of existing ESG benchmarks is affected by a lack of harmonisation of their methodologies and the diverging levels of ambition of the objectives pursued.
Stakeholders have an opportunity to have their say by participating in a survey that will provide input to the study:
- benchmark administrators
- benchmark constituents/companies
- benchmark institutional investors/asset managers
Views are invited in particular from the following stakeholders: administrators of ESG-related benchmarks; ESG research, ratings and data providers; financial regulatory authorities (including national competent authorities, ESAs, ECB, ESRB); financial associations; sustainability-related NGOs; investors and issuers’ organisations and associations; academia.
The deadline for taking part in the survey was 8 April 2022.