(BRUSSELS) – The EU Council and Parliament reached a preliminary agreement Monday on a proposal for new financial benchmarks aimed at giving greater information on an investment portfolio’s carbon footprint.
The EU is building a regulatory framework to encourage investors to be more aware of the impact of their business on the environment.
The agreement 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.
The agreement was welcomed by the European Commission: “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,” said EC vice-president Jyrki Katainen.
Benchmarks have an important impact on investment flows, says the EU executive. 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.
A technical expert group will now advise the 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 31 December 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.