Featured Product

    ISDA and AFME Respond to EC Consultations on Climate Benchmarks

    May 06, 2020

    ISDA and the Association for Financial Markets in Europe (AFME or Associations) issued a response to EC consultations on three draft delegated acts that specify requirements of EU Climate Transition Benchmarks and EU Paris-aligned benchmarks. From a standard-setting perspective, the Associations welcome the proposed Carbon Benchmark requirements, as the proposals include vital elements necessary for creating standard templates while allowing some degree of flexibility to benchmark administrators. An EU standardized climate benchmarks framework would undoubtedly result in a less fragmented landscape on the data provision front for all market participants. In addition to specific comments on the three draft delegated acts, the Associations also emphasize a few general concerns of their members in relation to the approach of EC to specifying requirements in the relevant Level 2 legislation.

    The EC consultations being referred to are the draft delegated acts on:

    • Establishing minimum standards for EU Climate Transition Benchmarks and Paris-aligned Benchmarks (Delegated Act on EU Climate Transition Benchmarks).
    • Minimum content of the explanation on how environmental, social, and governance (ESG) factors are reflected in the benchmark methodology (Delegated Act on Benchmark Methodology)
    • The explanation in the benchmark statement of how ESG factors are reflected in each benchmark provided and published (Delegated Act on Benchmark Statement).

    The Associations stressed that the requirements suggested in the draft delegated act in relation to ESG disclosures in the benchmark statement and the related Annexes do not fully take into account market practices in relation to maintenance of benchmark statements. In the event that benchmark administrators would not have flexibility to deviate from the suggested template for the benchmark statement, they will have to endure disproportionate costs to apply the suggested template for all benchmarks and families of benchmarks. The Associations are of the view that the suggested approach would strongly discourage benchmark administrators from providing ESG benchmarks and would, therefore, run contrary to the objective of the Regulation, which is to mainstream the provisions of ESG benchmarks. In this context, it is important to note that significant channeling of financial resources into sustainable economic activities will only occur if a wide variety of benchmark administrators are incentivized to market EU Climate Transition and EU Paris-aligned Benchmarks.

    The Associations encourage EC to set out a clear definition of “ESG objectives” to ensure that all ESG-labeled benchmarks meet a minimum standard of what is considered ESG, in addition to the underlying factor disclosures. The Associations note that the draft Delegated Act on Benchmark Methodology lists "Commodity benchmarks" in its Article 1(3)(f). However, Title II of the Benchmarks Regulation, with the exception of Article 10, does not apply to commodity benchmarks as specified in Article 19(1) of the Benchmarks Regulation. Therefore, the Associations requested EC to remove Article 1(3)(f) from the final Delegated Act on Benchmark Methodology. The Associations support the efforts of EC to close the gap between required data resulting from all relevant sustainable finance legislation but would also urge EC to allow more flexibility for benchmark administrators, until relevant data points become comparable and accessible under affordable cost structures. The Associations also specified that proportionality is needed in relation to ESG disclosures and requested further clarification in relation to asset class differentiation.

     

    Related Link: Response to EC (PDF)

     

    Keywords: Europe, EU, Banking, Insurance, Securities, ESG, Climate Benchmarks, Climate Change Risk, Sustainable Finance, Benchmarks Regulation, Delegated Act, Climate Transition Benchmarks, Paris Agreement, AFME, EC, ISDA

    Related Articles
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7291