Practices

Financing a sustainable european economy: Report on climate benchmarks

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The agreement reached by the European co-legislators on the regulation amending Regulation (EU) 2016/2011, as part of the Commission's Action Plan on Financing Sustainable Growth, resulted in two essential measures regarding investment benchmarks.

 

The first is the creation of two types of climate benchmarks and the second measure is the definition of Environmental, Social and Governance (ESG) disclosure requirements that shall be applicable to all investment benchmarks.

 

Since conventional benchmarks do not reflect low-carbon considerations in their methodologies and are not appropriate to measure the performance of sustainable investment strategies, over the past decade index providers have designed hundreds of ESG and ‘low-carbon’ benchmarks.

 

The index design drivers have mainly been focused on the objective of reducing investment risks related to climate change, especially tail risks.

 

The main objectives of the new climate benchmarks’ report is to

 

(i) allow a significant level of comparability of climate benchmarks methodologies while leaving benchmarks’ administrators with an important level of flexibility in designing their methodology;

 

(ii) provide investors with an appropriate tool that is aligned with their investment strategy;

 

(iii) increase transparency on investors’ impact, specifically with regard to climate change and the energy transition; 

 

(iv) disincentivize greenwashing.