February 25, 2019

EC welcomed the political agreement reached by the European Parliament and member states on a new generation of low-carbon benchmarks needed to help boost investment in sustainable projects and assets. The European Parliament and Council still have to formally approve the rules. This agreement creates two new categories of low-carbon benchmarks: a climate-transition benchmark and a specialized benchmark that brings investment portfolios in line with the Paris Agreement goal to limit the global temperature increase to 1.5˚above the pre-industrial levels. In addition to the proposal to regulate benchmarks for low-carbon investment strategies (provisionally agreed), these measures also included a proposal to establish a unified EU classification system (taxonomy) of sustainable economic activities and a proposal to improve disclosure requirements related to sustainability risks and opportunities.

Separately, the EU institutions also agreed to grant providers of “critical benchmarks”—interest rates such as Euribor or EONIA—two extra years until December  31, 2021 to comply with the new Benchmark Regulation requirements. Given the crucial importance of third-country benchmarks for EU companies, the extra two years for benchmarks produced outside the EU was also introduced to provide additional time for work with non-EU regulators on how these benchmarks can be recognized as equivalent or otherwise endorsed for use in the EU.  The Permanent Representatives Committee (COREPER) of the Council of Ministers and the European Parliament will have to formally adopt the new rules before they can enter into force.

First proposed by EC in May 2018, the rules agreed now support the goals of the Capital Market Union to connect finance with needs of the economy and the EU agenda for sustainable development.  The two new categories are voluntary labels designed to orient the choice of investors that wish to adopt a climate-conscious investment strategy. The climate-transition benchmark will offer a low-carbon alternative to the commonly used benchmarks.The Paris-aligned benchmark will only comprise companies that can demonstrate that they are aligned with a 1.5˚ target. The new labels are designed to give additional assurances to avoid “greenwashing”—that is, that investors are deceived by misleading or unsubstantiated claims about the environmental benefits of a benchmark. A technical expert group will now advise EC on how to select the companies eligible for inclusion in the new benchmarks. The expert group will also advise on whether to exclude certain sectors of economic activity from the specialized Paris-aligned benchmark.

Once the expert group has given its advice, EC will propose delegated rules that cover the composition of both benchmarks in further detail. Valdis Dombrovskis, Vice-President responsible for the Euro and Social Dialog, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: "With this agreement, investors will benefit from two reliable benchmarks to pursue their ambitious climate strategies. This is a milestone of the Commission action plan on financing sustainable growth, participating in reorienting capital flows towards sustainable investment."  

 

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Keywords: Europe, EU, Banking, Securities, Insurance, Sustainable Finance, Climate Change Risks, Low Carbon Benchmarks, Capital Markets Union, EC

 

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