EC adopted delegated acts that set out minimum technical requirements for EU climate benchmarks as well as a number of environmental, social and governance (ESG) disclosure requirements. EC has published provisional versions of these delegated regulations, along with an annex to these regulations, that supplement the Benchmark Regulation (2016/1011). The delegated acts provide (in the benchmark statement) an explanation of how ESG factors are reflected in each provided and published benchmark, minimum content of the explanation on how ESG factors are reflected in the benchmark methodology, and minimum standards for EU Climate Transition Benchmarks and Paris-aligned Benchmarks. The new rules clarify when benchmark administrators are required to update the template for the benchmark statement and the template for the benchmark methodology.
The Benchmark Regulation introduces a common framework to ensure the accuracy and integrity of benchmarks referenced in financial instruments, financial contracts, or investment funds in EU. The delegated act sets out the technical requirements that a benchmark needs to include if it is to be labeled as an EU Climate Benchmark. For example, the sectors to which the benchmark is allocated are required to reduce their carbon emissions from one year to the next and to exclude assets that significantly harm ESG objectives. The objectives of the Delegated Regulations include the following:
- To set out explanation that benchmarks are required to include in the benchmark statement about how ESG factors are reflected in each benchmark or, where applicable, the family of benchmarks provided and published
- To lay down the minimum content of the explanation of how the key elements of the benchmark methodology reflect ESG factors for each benchmark, with the exception of interest rate and foreign-exchange benchmarks, and the standard format to be used
- To set out the minimum standards that EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks should meet to be labeled as such and to lay down the transparency requirements on the methodology for both benchmarks
EC staff held meetings with stakeholders to discuss the future delegated measures in the Fall of 2019 and during the first half of 2020. In accordance with the Better Regulation rules, the draft delegated acts were published on the Better Regulation portal for a four-week feedback between April and May 2020.
Keywords: Europe, EU, Banking, Insurance, Securities, ESG, Climate Benchmarks, Climate Change Risk, Sustainable Finance, Benchmarks Regulation, Delegated Act, Climate Transition Benchmarks, Paris Agreement, EC
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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