The European Parliament and the Member States reached a political agreement on February 25 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.
According to the Commission, which hailed the political agreement, the deal creates two new categories of low-carbon benchmarks: a climate-transition benchmark and a specialised benchmark which brings investment portfolios in line with the Paris Agreement goal to limit the global temperature increase to 1.5˚above pre-industrial levels.
First proposed by the Commission in May 2018, the rules agreed today to support the goals of the Capital Market Union to connect finance with needs of the economy and the EU’s agenda for sustainable development.
EU Commission Vice President in charge of Financial Services Valdis Dombrovskis 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,” he said.
For his part, Commission Vice President responsible for Jobs, Growth, Investment and Competitiveness Jyrki Katainen hailed the agreement, noting that it demonstrates that the EU’s Sustainable Finance agenda and goals to build a stronger Capital Market Union can work hand in hand. “The EU is sticking to its ambitions to make Europe a more attractive place for investors by setting high disclosure standards and paving the way for long-term sustainable investment policies,” he said.
According to the Commission, benchmarks have an important impact on investment flows. Many investors rely on them for the creation of investment products, for the measurement of performance of investment products and for asset allocation strategies.
The two new categories are voluntary labels designed to orient the choice of investors who 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”, i.e. that investors are deceived by misleading or unsubstantiated claims about the environmental benefits of a benchmark, the Commission said.
A technical expert group will now advise the European Commission 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 specialised Paris-aligned benchmark. Once the expert group has given its advice, the European Commission will propose delegated rules that cover the composition of both benchmarks in further detail.
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 recognised as equivalent or otherwise endorsed for use in the EU.
Further technical talks will follow the political agreement of February 25 for the finalisation of the text. The Permanent Representatives Committee of the Council of Ministers and the European Parliament will have to formally adopt the new rules before they can enter into force.