Legal definition of EU Climate Transition Benchmark (CTB) is stipulated in Article 3(1) (23a) of Regulation (EU) 2016/1011 the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 as amended by Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks (Benchmarks Regulation).

         
          
New                                    


       

 

 

According to the said provision 'EU Climate Transition Benchmark’ means 'a benchmark which is labelled as an EU Climate Transition Benchmark and fulfils the following requirements:

(a) for the purposes of point 1(b)(ii) of this paragraph and of Article 19b, its underlying assets are selected, weighted or excluded in such a manner that the resulting benchmark portfolio is on a decarbonisation trajectory; and

(b) it is constructed in accordance with the minimum standards laid down in the delegated acts referred to in Article 19a(2)'.

Further detailed requirements in this regard are set out in Chapter 3A of the aforementioned Regulation - see box. 

 

quote

 

Regulation (EU) 2016/1011 the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014

as amended by

Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks (Benchmarks Regulation).


Article 3(1) (23a)

‘EU Climate Transition Benchmark’ means a benchmark which is labelled as an EU Climate Transition Benchmark and fulfils the following requirements:

(a) for the purposes of point 1(b)(ii) of this paragraph and of Article 19b, its underlying assets are selected, weighted or excluded in such a manner that the resulting benchmark portfolio is on a decarbonisation trajectory; and

(b) it is constructed in accordance with the minimum standards laid down in the delegated acts referred to in Article 19a(2)

 

Chapter 3A

EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks

 

Article 19a

EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks

1. The requirements laid down in Annex III shall apply to the provision of, and contribution to, EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks, in addition to the requirements of Titles II, III and IV.

2. The Commission is empowered to adopt delegated acts in accordance with Article 49 to supplement this Regulation by laying down the minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks to specify:
(a) the criteria for the choice of the underlying assets, including, where applicable, any criteria for excluding assets;
(b) the criteria and method for the weighting of the underlying assets in the benchmark;
(c) the determination of the decarbonisation trajectory for EU Climate Transition Benchmarks.

3. Benchmark administrators which provide an EU Climate Tran­sition Benchmark or an EU Paris-aligned Benchmark shall comply with this Regulation by 30 April 2020.

 

Article 19b

Requirements for EU Climate Transition Benchmarks

Administrators of EU Climate Transition Benchmarks shall select, weight, or exclude underlying assets issued by companies that follow a decarbonisation trajectory by 31 December 2022, in accordance with the following requirements:
(i) the companies disclose measurable carbon emission reduction targets to be achieved within specific timeframes;
(ii) the companies disclose a reduction in carbon emissions which is disaggregated down to the level of relevant operating subsidiaries;
(iii) the companies disclose annual information on progress made towards those targets;
(iv) the activities relating to the underlying assets do not significantly harm other ESG objectives.

 

Article 19c

Exclusions for EU Paris-aligned Benchmarks

1. The Commission is empowered to adopt a delegated act in accordance with Article 49 in order to supplement this Regulation by identifying, in respect of EU Paris-aligned Benchmarks, the sectors to be excluded because they do not have measurable carbon emission reduction targets with specific deadlines that are aligned with the objectives of the Paris Agreement. The Commission shall adopt that delegated act by 1 January 2021 and update it every three years.
2. When drawing up the delegated act referred to in paragraph 1, the Commission shall take into account the work of the TEG.

 

Article 19d

Endeavour to provide EU Climate Transition Benchmarks
By 1 January 2022, administrators which are located in the Union and which provide significant benchmarks determined on the basis of the value of one or more underlying assets or prices shall endeavour to provide one or more EU Climate Transition Benchmarks.

 
Annex III

EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks

Methodology for EU Climate Transition Benchmarks

(1) The administrator of an EU Climate Transition Benchmark shall formalise, document and make public any methodology used for the calculation of the benchmark, giving the following information, while ensuring confidentiality and the protection of undisclosed know-how and business information (trade secrets) as defined in Directive (EU) 2016/943 of the European Parliament and of the Council
(a) the list of the main constituents of the benchmark;
(b) all criteria and methods, including selection and weighting factors, metrics and proxies used in the benchmark methodology;
(c) the criteria applied to exclude assets or companies that are associated with a level of carbon footprint or a level of fossil fuel reserves that are incompatible with inclusion in the benchmark;
(d) the criteria for the determination of the decarbonisation trajectory;
(e) the type and source of data used to determine the decarbonisation trajectory for:
(i) Scope 1 carbon emissions, namely emissions generated from sources that are controlled by the company that issues the underlying assets;
(ii) Scope 2 carbon emissions, namely emissions from the consumption of purchased electricity, steam, or other sources of energy generated upstream from the company that issues the underlying assets;
(iii) Scope 3 carbon emissions, namely all indirect emissions that are not covered by points (i) and (ii) that occur in the value chain of the reporting company, including both upstream and downstream emissions, in particular for sectors with a high impact on climate change and its mitigation;
(iv) whether the data uses the Product and Organisation Environmental Footprint methods as defined in points (a) and (b) of point 2 of Commission Recommendation 2013/179/EU or global standards such as those of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures;
(f) the total carbon emissions of the index portfolio.

Where a parent index is used for the construction of an EU Climate Tran­ sition Benchmark, the tracking error between the EU Climate Transition Benchmark and the parent index shall be disclosed.

Where a parent index is used for the construction of an EU Climate Tran­ sition Benchmark, the ratio between the market value of the securities that are in the EU Climate Transition Benchmark and the market value of the securities in the parent index shall be disclosed.

...

Changes to the methodology

(3) Administrators of EU Climate Transition and EU Paris-aligned Benchmarks shall adopt procedures for introducing changes to their methodology. They shall make those procedures public, and shall make public any proposed changes to their methodology and the rationale for those changes. Those procedures shall be consistent with the overriding objective that benchmark calculations be consistent with points (23a) and (23b) of Article 3(1). Those procedures shall provide:
(a) advance notice within a clear timeframe that gives users of benchmarks sufficient opportunity to analyse and comment on the impact of such proposed changes, having regard to the administrators’ calculation of the overall circumstances;
(b) for the possibility for users of benchmarks to comment on those changes and for the administrators to respond to those comments, and shall make those comments accessible after any given consultation period, except where the commenter has requested confidentiality.

(4) Administrators of EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks shall regularly examine their methodologies on at least an annual basis to ensure that their benchmarks reliably reflect the stated objec­ tives, and shall have a process in place for taking the views of all relevant users into account.



 

quote

 

Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks, Articles 9, 10

Article 9
Baseline reduction of GHG intensity or absolute GHG emissions for EU Climate Transition Benchmarks

The GHG intensity or, where applicable, absolute GHG emissions for EU Climate Transition Benchmarks, including Scope 1, 2 and 3 GHG emissions, shall be at least 30 % lower than the GHG intensity or absolute GHG emissions of the investable universe.
For the purposes of the first subparagraph, Scope 3 GHG emissions shall be construed in accordance with the phase-in implementation period set out in Article 5.

Article 10
Exclusions for EU Climate Transition Benchmarks

1. Administrators of EU Climate Transition Benchmarks shall disclose in their methodology whether and how they exclude companies.
2. By 31 December 2022, administrators of EU Climate Transition Benchmarks shall comply with the requirements set out in Article 12(1), points (a), (b) and (c), and Article 12(2).

 

 

Interlinkages with the SFDR Regulation

 

Article 9(1) and (2) SFDR apply: “Where a financial product has sustainable investment as its objective”. In addition, Article 9(3) SFDR requires:

Where a financial product has a reduction in carbon emissions as its objective, the information to be disclosed pursuant to Article 6(1) and (3) shall include the objective of low carbon emission exposure in view of achieving the long-term global warming objectives of the Paris Agreement.

By way of derogation from paragraph 2 of this Article, where no EU Climate Transition Benchmark or EU Paris-aligned Benchmark in accordance with Regulation (EU) 2016/1011 of the European Parliament and of the Council is available, the information referred to in Article 6 shall include a detailed explanation of how the continued effort of attaining the objective of reducing carbon emissions is ensured in view of achieving the long-term global warming objectives of the Paris Agreement.

 clip2   Links

 

 

EU climate benchmarks and benchmarks’ ESG disclosures, the European Commission website

 

Sustainable finance

 

EU Climate Benchmark

European Supervisory Authorities (ESAs) letter of 7 January 2021 to the European Commission (Priority issues relating to SFDR application, JC 2021 02) identifies the following questions regarding the application of Article 9 of the SFDR in the context of the EU CTB and EU Paris-aligned Benchmark (EU PAB):

  • Must a product to which Article 9(1), (2) or (3) SFDR applies only invest in sustainable investments as defined in Article 2(17) SFDR? If not, is a minimum share of sustainable investments required (or would there be a maximum limit to the share of “other” investments)?
  • Where an EU CTB or EU PAB exists, is it necessary for a product to track an EU PAB or an EU CTB on a passive basis for Article 9(3) SFDR to apply to it?
  • If the questions above are answered in the affirmative and if the minimum standards of an EU PAB or an EU CTB do not require the index components to be sustainable investments, can the product fall within the scope of Article 9(3) SFDR?

The European Commission adopted a set of Q&As on 5 April 2023 to clarify that the SFDR deems products passively tracking Climate Transition Benchmarks and Paris-aligned Benchmarks to have ‘sustainable investments’, as defined in the SFDR, as their objective. 

 

 

 chronicle   Regulatory chronicle 

 

 

3 December 2020

 

Publication in the EU Official Journal of:

 

Commission Delegated Regulation (EU) 2020/1816 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the explanation in the benchmark statement of how environmental, social and governance factors are reflected in each benchmark provided and published

 

Commission Delegated Regulation (EU) 2020/1817 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the minimum content of the explanation on how environmental, social and governance factors are reflected in the benchmark methodology

 

Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks

 

29 April 2020

 

ESMA issues a No Action Letter regarding the new environmental, social and governance (ESG) disclosure requirements for benchmark administrators under the Benchmarks Regulation 

 

20 December 2019

 

Handbook on Climate Transition Benchmarks, Paris-aligned Benchmark and benchmarks’ ESG disclosures, EU Technical Expert Group on Sustainable Finance (TEG)

 

17 November 2019

 

Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks 

 

30 September 2019

 

TEG Final report on climate benchmarks and benchmarks’ ESG disclosures

 

 

IMG 0744   Documentation

 

 

Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks

 

Commission Delegated Regulation (EU) 2020/1816 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the explanation in the benchmark statement of how environmental, social and governance factors are reflected in each benchmark provided and published

 

Commission Delegated Regulation (EU) 2020/1817 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the minimum content of the explanation on how environmental, social and governance factors are reflected in the benchmark methodology

 

Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks  

 

Cookies

We use cookies on our website to support technical features that enhance your user experience and help us improve our website. By continuing to use this website you accept our Privacy Policy.