The EU Low Carbon Benchmark Regulation requires administrators of benchmarks (other than interest rate and FX) to comply with new requirements to disclose ESG factors in their methodology documents and benchmark statements. The delegated regulations ((EU) 2020/1816 and (EU) 2020/1817) for ESG disclosure (“Delegated Regulations”) are effective as of Dec. 23, 2020.
EU LOW CARBON BENCHMARK REGULATION
- What are the regulations, and what do they aim to achieve? The EU Low Carbon Benchmark Regulation amends the EU Benchmark Regulation in two ways: first, it introduces two new benchmark classifications—EU Climate Transition Benchmarks (EU CTB) and EU Paris-Aligned Benchmarks (EU PAB)—and second, it requires administrators of ESG benchmarks to publish certain information. Administrators of benchmarks that pursue ESG objectives must (i) publish an explanation of how key elements of the methodology reflect ESG factors; and (ii) explain in the benchmark statement how ESG factors are reflected for each benchmark or family of benchmarks. The aims of the Delegated Regulations are to:
- Create a common framework of requirements that promotes consistency, leading to greater comparability between benchmarks;
- Clearly state if a benchmark pursues ESG objectives, helping investors to identify them; and
- Generate greater transparency of a benchmark’s objectives to help investors understand them more easily.
- When did the Delegated Regulations come into effect? The Delegated Regulations are effective as of Dec. 23, 2020.
- Where does the EU Low Carbon Benchmark Regulation originate from? The European Commission published its action plan for financing EU sustainable growth in March 2018. A primary objective of the sustainable finance action plan is to channel private investment into the transition to a climate-neutral economy. One of the initiatives that the EU has implemented to help achieve this goal is the amendment of the EU Benchmark Regulation. This amendment enhances the ESG transparency of benchmark methodologies and specifies minimum methodology standards for low carbon benchmarks in the EU.
- What are the disclosures required by the Delegated Regulations? The EU Low Carbon Benchmark Regulation requires benchmark administrators to make ESG disclosures in two separate documents: the benchmark methodology and the benchmark statement. In addition, the Delegated Regulations mandate the use of specific disclosure templates.