The Commission welcomes the political agreement reached by the European Parliament and Member States today 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.
This 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. First proposed by the Commission in May 2018, the rules agreed today support the goals of the Capital Market Union (CMU) to connect finance with needs of the economy and the EU's agenda for sustainable development.
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Valdis Dombrovskis, Vice-President responsible for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, 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".
Jyrki Katainen, Vice-President responsible for Jobs, Growth, Investment and Competitiveness, said: "I welcome the agreement reached tonight which demonstrates that our 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".
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.
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 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.
Next Steps
Further technical talks will follow today's political agreement for the finalisation of the text. The Permanent Representatives Committee (COREPER) of the Council of Ministers and the European Parliament will have to formally adopt the new rules before they can enter into force.
Background
By pioneering action through its Capital Markets Union, the EU intends to globally lead the shift and scale up private investment towards achieving the objectives of the Paris Climate Agreement. On 24 May 2018 the Commission presented a series of legislative measures that follow up to the first ever EU Action Plan on Financing Sustainable Growth, which will allow the financial sector to throw its full weight behind the fight against climate change.
In addition to the proposal to regulate benchmarks for low-carbon investment strategies – provisionally agreed today, these measures also included:
- A proposal to establish a unified EU classification system ('taxonomy') of sustainable economic activities,
- A proposal to improve disclosure requirements related to sustainability risks and opportunities.
The Commission is working with the co-legislators with the objective to reach an agreement on the remaining two proposals before the end of this mandate.
Source: European Commission
The Association for Financial Markets in Europe welcomed the extension:
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AFME welcomes the creation of the two new categories of benchmarks and the transparency introduced for their methodologies (which should nevertheless remain proportionate).
On critical benchmarks:
“The two-year extension is extremely welcome given the sheer number and variety of financial contracts linked to the two main EU critical benchmarks, Euribor and EONIA, which means reform will be immensely complex and much still remains to be done.”
On third country benchmarks:
“Despite their misleading ‘non-critical’ labelling under the BMR, third country benchmarks, such as non-EU Foreign Exchange spot rates, are widely used by EU financial firms and corporates in hedging commercial activities and investments abroad”
“Therefore, this delay is extremely welcome news, particularly given that the January 2020 deadline would have been extremely disruptive to EU financial firms and corporates who would have struggled to perform their economic activities abroad if these benchmarks were prohibited.
“During the two-year delay, we would very much welcome a revision of the third country regime under the BMR Review to rectify any unintended consequences.”
Source: AFME
