ISDA and AFME Respond to Interim Report on Climate Benchmarks in EU
ISDA and Association for Financial Markets in Europe (AFME) responded to the interim report on climate benchmarks and environmental, social and governance (ESG) disclosures of benchmarks by the EU Technical Expert Group (TEG) on sustainable finance. ISDA-AFME discusses the need for flexibility in benchmark methodologies and proportionality in relation to ESG disclosure requirements under the EU Benchmarks Regulation.
Proportionality in the European Benchmarks Regulation shall apply in relation to ESG disclosures for non-ESG benchmarks. ISDA and AFME would welcome that the requirements for non-significant benchmarks in relation to ESG criteria and carbon emissions disclosures should follow a consistent proportionality approach—that is, ESG disclosure requirements for significant benchmarks shall be more comprehensive than for non-significant benchmarks. ISDA and AFME would welcome the TEG final report to reflect this proportionality, as disclosure of ESG factors and Key Performance Indicator (KPIs) should be in the form of guidelines rather than being mandatory for non-significant benchmarks.
Differentiation by asset class, type of benchmarks, and investor need is necessary for effective ESG disclosures. Given the characteristics and diversity of benchmarks, ISDA and AFME welcome the TEG approach to adapt disclosure requirements to different asset classes. ISDA and AFME welcome that derivative instruments for the transfer of credit risk, such as credit default swaps or CDS, should not apply ESG disclosure, agreeing with the TEG analysis that setting any ESG disclosures for a CDS index would essentially require disclosing the characteristics of a second-level structured product. ISDA and AFME support an exemption of the ESG disclosures for all derivatives benchmarks that do not specifically pursue ESG objectives. ISDA and AFME would like to call on EC to consider the different types of investment styles when preparing the delegated act on minimum requirements for ESG disclosure.
Availability of high-quality and affordable data needs to be enhanced. ISDA and AFME support the TEG recommendation for a non-disclosure option in the template for the methodology and the benchmark statement. This is also in line with the primary legislation (level 1 text of the EU Benchmarks Regulation). If ESG data disclosure requirements are too rigid, the required growth of the ESG market, needed to fulfill the overarching objective of the sustainable finance agenda may be jeopardized. To facilitate the availability of data, the co-legislators and the EC, depending on the type of legislation, shall align disclosure requirements resulting from other financial services legislation with the requirements of the Benchmarks Regulation.
Related Links
Keywords: Europe, EU, Banking, Securities, Sustainable Finance, Climate Benchmarks, ESG, Disclosures, Proportionality, Benchmarks Regulation, AFME, ISDA
Previous Article
EBA Single Rulebook Q&A: Third Update for April 2018Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.