Green finance: the EU accelerates adoption of EU Climate Transition and Paris-aligned Benchmarks

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Green finance: the EU accelerates adoption of EU Climate Transition and Paris-aligned Benchmarks

9 April 2019

Context and objectives

In 2015, the European Union (EU) concluded the Paris Climate Agreement, setting, among others, the objective to make finance flows consistent with a pathway towards low greenhouse gas emission and climate-resilient development.

Recognizing the limited window to achieve such transformation towards sustainability in the financial sector, the EU has now taken accelerated measures to introduce new rules on low-carbon benchmarks. This regulation should only apply to so-called “EU Climate Transition” and “Paris-aligned” benchmarks, introduced with the aim to channel capital flows towards sustainable investments by incentivizing companies to measure the environmental costs of their business and the profits derived from using environmental service.

These new rules form an integral part of the EU Action Plan on Financing Sustainable Growth, presented by the European Commission (EC) in May 2018, and amend Regulation (EU) 2016/1011 – the “Benchmarks Regulation” (BMR) – to include the above-mentioned benchmarks in the regulatory scope as well as to establish minimum standards and a common methodology across the EU.

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Key features of the new benchmark rules

Critical changes to the BMR introduced by the proposal include:

  • The establishment of EU Climate Transition and EU Paris-aligned Benchmarks, underpinned by a methodology linked to commitments regarding carbon emission of the Paris Climate Agreement
  • The development of minimum standards for EU Climate Transition and EU Paris-aligned Benchmarks and the restriction of the use of those labels to administrators that comply with the defined minimum standards
  • The obligation for all benchmark administrators (except for administrators of interest and currency rate benchmarks) to disclose whether or not their benchmarks pursue environmental, social and governance (ESG) objectives and the degree of compliance
  • The requirement for administrators of EU Climate Transition and EU Paris-aligned Benchmarks to publish their calculation methodology, which should be science-based decarbonization trajectories.

Where we stand today

On 26 March 2019, the European Parliament (EP) adopted the proposed amendment to the BMR in its first reading. Prior to this vote, a number of informal contacts had taken place between the Council, EC and EP, ensuring that the proposed regulation reflects all views and serves already as a compromise.

The purpose of this procedure was to avoid the need for a second reading and conciliation, thus accelerating the adoption of the new rules. Consequently, the Council should be in a position to directly approve the position of the EP and the act would be adopted in the wording corresponding to the EP’s position.

How can Deloitte help?

Deloitte’s advisory specialists and dedicated services will help you design and implement your business strategy in light of the future evolution of the regulatory framework and market trends.

Deloitte can also help you with its RegWatch Kaleidoscope service to stay ahead of the regulatory curve to better manage and plan upcoming regulations.

Contacts

Pascal Martino
Partner – Banking Leader
Tel : +352 45145 2119
pamartino@deloitte.lu

Simon Ramos
Partner – IM Advisory & Consulting 
Leader
Tel : +352 45145 2702
siramos@deloitte.lu

Benoit Sauvage
Director – RegWatch, Strategy and Consulting
Tel : +352 45145 4220
bsauvage@deloitte.lu

Julie Castiaux
Senior Manager – Sustainability Expert
Tel : +352 45145 3648
jucastiaux@deloitte.lu

Marijana Vuksic
Manager – Regulatory & Consulting
Tel : +352 45145 2311
mvuksic@deloitte.lu

 
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