The EU Low Carbon Benchmark Regulation requires administrators of benchmarks (other than interest rate and FX) to comply with new requirements to disclose environmental, social, and governance (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.
- 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.