CELEX: 
Language: en
Date: 2020-07-17 00:00:00
Title: COMMISSION DELEGATED REGULATION (EU) …/... 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

EUROPEAN
                           COMMISSION
                                                  Brussels, 17.7.2020
                                                  C(2020) 4757 final
                 COMMISSION DELEGATED REGULATION (EU) …/...
                                      of 17.7.2020
     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
EN                                                                                  EN
 ---pagebreak---                                  EXPLANATORY MEMORANDUM
   1.        CONTEXT OF THE DELEGATED ACT
   1.1.      General background
   In 2015, the European Union signed the Paris Climate Agreement. The Paris Climate
   Agreement sets the objective to strengthen the response to climate change, among other
   means by making investment flows consistent with a pathway towards low greenhouse gas
   emissions and climate-resilient development.
   The European Green Deal communication confirms the need for long-term signals to direct
   financial and capital flows to green investment and to avoid stranded assets. This delegated
   act will contribute to this specific objective. It also follows up on the earlier Action Plan
   ‘Financing Sustainable Growth’ of March 2018, launching an ambitious and comprehensive
   strategy on sustainable finance and aiming to reorient capital flows towards sustainable
   investment to achieve sustainable and inclusive growth.
   More broadly, the European Green Deal is the European Union’s response to the climate and
   environmental challenges that are this generation’s defining task. It is a new growth strategy that
   aims to transform the EU into a fair and prosperous society, with a modern, resource-efficient and
   competitive economy where there are no net emissions of greenhouse gases in 2050, where the
   environment and health of citizens are protected, and where economic growth is decoupled from
   resource use. Since companies and households will have to provide the bulk of the sustainable
   investments in the next decade, it is crucial to put in place clear long-term signals to guide
   investors to sustainable investment.
   Regulation (EU) 2016/1011 of the European Parliament and of the Council 1 (the Benchmark
   Regulation) introduces a common framework to ensure the accuracy and integrity of
   benchmarks referenced in financial instruments, financial contracts or investment funds in the
   European Union. In doing so, it aims to contribute to the functioning of the internal market,
   while achieving a high level of consumer and investor protection.
   On 24 May 2018, the Commission published its proposal to amend the Benchmark
   Regulation, in accordance with the Action Plan ‘Financing Sustainable Growth’, with the
   objective to put forward standards for the methodology of low-carbon benchmarks in the
   Union.
   Regulation (EU) 2019/2089 of the European Parliament and of the Council2 introduces a new
   category of benchmarks, so-called EU Climate Benchmarks (the EU Climate Transition
   Benchmarks and EU Paris-aligned Benchmarks), and sustainability-related disclosures for all
   benchmarks.
   1.2.      Objectives of the Delegated Regulation
   The objective of this Delegated Regulation is to set out the minimum standards that EU
   Climate Transition Benchmarks and EU Paris-aligned Benchmarks should meet in order to be
   labelled as such, and lay down the transparency requirements on the methodology for both
   benchmarks.
   1
           Regulation (EU) 2016/1011 of 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 (OJ L 171, 29.6.2016, p. 1).
   2
           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 (OJ L 317, 9.12.2019, p. 17).
EN                                                       1                                                      EN
 ---pagebreak---    1.3.      Legal background
   This Delegated Regulation is based on the empowerment set out in Article 19a(2) of the
   Benchmark Regulation.
   2.        CONSULTATIONS PRIOR TO THE ADOPTION OF THE ACT
   In June 2018, the Commission set up a Technical Expert Group on Sustainable Finance
   (TEG). The mission of the TEG included the provision to the Commission of
   recommendations as to the minimum technical requirements for the methodology of the EU
   Climate benchmarks.
   In June 2019, the TEG published an interim version of the report, which was subject to a call
   for feedback running over the summer 2019.
   On 30 September 2019, the TEG published its final report. This final report is available at
   https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/docum
   ents/190930-sustainable-finance-teg-final-report-climate-benchmarks-and-disclosures_en.pdf.
   The Commission staff held meetings with stakeholders to discuss the future delegated
   measures in the fall of 2019 and during the first half of 2020. In accordance with Better
   Regulation rules, the draft delegated acts were published on the Better Regulation portal for a 4
   weeks feedback period between April and May 2020. In total, 36 stakeholders answered to such
   consultation. Furthermore, at the meeting of the Expert Group of the European Securities
   Committee (EGESC) in May 2020, the draft delegated acts were presented to and discussed
   among Member States’ experts, with observers from the European Parliament.
   3.        IMPACT ASSESSMENT
   In accordance with the Benchmark Regulation as amended by Regulation (EU) 2019/2089,
   the Commission is empowered to specify sustainability-related measures for benchmarks. It
   includes three topics: minimum requirements for the construction of EU Climate Transition
   Benchmarks and EU Paris-aligned Benchmarks, the minimum content of the explanation of
   how the key elements of the benchmark methodology reflect ESG factors and the information
   the benchmark administrator has to provide in the benchmark statement on the explanation on
   how ESG factors are reflected.
   The TEG was mandated by the Commission to deliver technical recommendations on all of
   those aspects. The TEG published its final report on climate benchmarks and benchmarks’
   ESG disclosures in September 2019, following numerous engagement with stakeholders via
   roundtables, workshops and a 6-week call for feedback that was conducted in the summer
   2019.
   TEG report
   The TEG final report contains a set of minimum requirements for the construction of EU
   Climate Transition Benchmarks and EU Paris-aligned Benchmarks and minimum ESG
   disclosure requirements that should be applicable to all benchmarks, with some exceptions.
   The Commission has considered all representations received, including the TEG’s report and
   the responses to the TEG’s call for feedback, as well as the input provided to the Commission
   by stakeholders during bilateral meetings or conference calls.
   While the Commission generally agrees with the approach taken by the TEG, the delegated
   acts nevertheless deviate from the TEG report in a number of instances, in particular in
   relation to ESG disclosure requirements. The objective is to streamline and simplify the
EN                                                  2                                                EN
 ---pagebreak---    TEG’s approach to provide more clarity on the set of indicators and on the information that
   benchmark administrators are expected to disclose. The amendments are put in simple terms
   and clarify the technical recommendations put forward by the TEG, improve the level of
   transparency and provide greater predictability for benchmark administrators.
   When specifying the minimum criteria for the construction of EU Climate Transition and EU
   Paris-aligned Benchmarks and ESG disclosure requirements, the Commission kept in mind
   the overarching principle of proportionality, while maintaining a certain level of flexibility for
   benchmark administrators.
   Proportionality
   The delegated acts further specify the empowerments relating to the new EU Climate
   Benchmarks and the ESG disclosure requirements that are contained in the Benchmark
   Regulation, ensuring the proportionate application of the latter.
   Taking into account the TEG report and the feedback received from stakeholders, the
   Commission has sought to introduce a proportionate approach to the minimum requirements
   for constructing EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks, and
   minimum ESG disclosure requirements for benchmark administrators.
   In accordance with the empowerments contained in the Benchmark Regulation, the
   Commission believes there is a need to distinguish between ESG disclosure requirements as
   regards the methodology and ESG disclosure requirements in the benchmark statement, as
   they do not pursue the same objectives for investors.
   Benchmark administrators are currently not required to disclose a list of ESG factors,
   although a number of them already do so, within so-called ‘factsheets’. Hence, this exercise
   will be new only to some of them. The objective of the Commission is to align to the extent
   possible on already existing market practices and indicators to avoid disproportionate costs.
   For this reason, the ESG factors are based on the recommendation of the TEG report that has
   been subject to extensive market consultation. The Commission also proposes to refine further
   the approach suggested by the TEG, streamlining in particular the list of ESG factors to be
   disclosed, simplifying the terminology used and referring, where applicable, to international
   standards, treaties and conventions.
   Furthermore, the Commission does not intend to mandate the disclosure of ESG ratings for all
   benchmarks, as this topic is being addressed in a separate and parallel work stream under the
   Action Plan on Sustainable Finance.
   Finally, while the TEG report recommends the use of a ‘green to brown share ratio’, such
   metric is not included in the delegated acts, as those notions have not yet been defined at EU
   level and are being considered in a separate and parallel work stream under the upcoming
   taxonomy Regulation.
   Flexibility
   The requirements laid down under the delegated act as regards minimum standards for EU
   Climate Transition Benchmarks and EU Paris-aligned Benchmarks maintain a certain degree
   of flexibility in the design of the methodology of benchmarks, in order to allow room for the
   market to develop innovative strategies and adapt to the specific need of investors.
   Regarding the delegated act on the minimum content of the explanation of how ESG factors
   are reflected in the benchmark methodology, benchmark administrators should only report on
   the ESG factors that they use when pursuing ESG objectives, and how they do so.
EN                                                 3                                                  EN
 ---pagebreak---    Finally, regarding the delegated act on the benchmark statement, benchmark administrators
   that do not pursue ESG objectives will not be bound by the requirements when they explicitly
   state this in the relevant template annexed to the benchmark statement.
   3.1       Analysis of costs and benefits
   One of the delegated acts specifies minimum standards for designing EU Climate Transition
   Benchmarks and EU Paris-aligned Benchmarks. Both benchmarks are voluntary labels and
   therefore the requirements set out in the related delegated act only apply to benchmark
   administrators that choose to opt-in for the rules. Since the delegated act lays down minimum
   standards, benchmark administrators will be allowed to maintain a certain degree of flexibility
   in their design, so that compliance costs would be limited. More generally, this approach
   would provide clear and harmonised rules on how to design such benchmarks, which should
   allow to possibly reduce the costs of developing internal policies, but also allow room for the
   market to develop innovative strategies, and address the demand of investors willing to make
   climate-conscious investment strategies.
   The two delegated acts on, respectively, minimum ESG disclosures on the methodology and
   on minimum ESG disclosures in the benchmark statement, will require benchmark
   administrators to adapt their IT infrastructure to accommodate the new flow of information
   and disclosure requirements. It is to be highlighted it is already current market practice for
   benchmark administrators to disclose ESG information in so-called ‘factsheets’, therefore
   compliance costs with the new rules are expected to be limited.
   The ESG information to be disclosed by benchmark administrators will improve the level of
   comparability among benchmarks and provide clarity for investors willing to make informed
   climate related investments.
   3.2       Subsidiarity
   The Benchmark Regulation is binding in its entirety and directly applicable in all Member
   States. The Benchmark Regulation contains a transitional period for critical benchmarks and
   third country benchmarks that may continue to be used in the Union without authorisation
   until end 2021.The legal basis for the Benchmark Regulation is Article 114 of the Treaty on
   Functioning of the European Union and any changes to that Regulation shall comply with the
   same legal basis.
   An increasing number of investors pursue low-carbon investment strategies and use low-
   carbon benchmarks to measure the performance of investment portfolios.
   In order to maintain the proper functioning of the internal market for the benefit of investors
   and to ensure a high level of consumer and investor protection, the Benchmark Regulation as
   amended introduces a regulatory framework which lays down minimum requirements for EU
   Climate Transition Benchmarks and EU Paris-aligned Benchmarks at Union level. The
   establishment of EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks,
   underpinned by a methodology linked to the commitments laid down in the Paris Agreement
   regarding carbon emissions, will contribute to increase transparency and help prevent
   greenwashing.
   In the absence of a harmonised framework to ensure the accuracy and integrity of the main
   categories of low-carbon benchmarks used in individual or collective investment portfolios, it
   is likely that differences in Member States’ approaches will create obstacles to the smooth
   functioning of the internal market.
EN                                                  4                                              EN
 ---pagebreak---    4.      LEGAL ELEMENTS OF THE DELEGATED ACT
   The right to adopt delegated acts is provided for under Article 49 of the Benchmark
   Regulation.
          Article 1 lays down the definitions applicable in this Regulation.
          Article 2 lays down the reference temperature scenario for the construction of EU
           Climate Transition and EU Paris-aligned Benchmarks.
          Article 3 lays down minimum requirements regarding the equity allocation
           constraints.
          Article 4 specifies requirements regarding the calculation of greenhouse gas (GHG)
           intensity or absolute GHG emissions.
          Article 5 lays down minimum requirements relating to the inclusion and phase-in of
           Scope 3 GHG emissions data.
          Article 6 lays down rules relating to companies setting and publishing GHG emission
           reduction targets.
          Article 7 lays down minimum requirements relating to the decarbonisation trajectory
           for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks.
          Article 8 sets out the rules to apply where there is a change in the calculation of GHG
           emissions.
          Article 9 lays down the baseline reduction of GHG emissions for Climate Transition
           Benchmarks compared to the investable universe.
          Article 10 lays down exclusions for EU Climate Transition Benchmarks.
          Article 11 lays down the baseline reduction of GHG emissions for Paris-aligned
           Benchmarks compared to the investable universe.
          Article 12 lays down exclusions for EU Paris-aligned Benchmarks.
          Article 13 lays down rules regarding transparency requirements for estimations.
          Article 14 lays down rules regarding the disclosure of the decarbonisation trajectory.
          Article 15 lays down rules about the accuracy of data sources.
EN                                                5                                                EN
 ---pagebreak---                    COMMISSION DELEGATED REGULATION (EU) …/...
                                               of 17.7.2020
       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
   THE EUROPEAN COMMISSION,
   Having regard to the Treaty on the Functioning of the European Union,
   Having regard to Regulation (EU) 2016/1011 of 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 596/20143, and in particular Article 19a(2) thereof,
   Whereas:
   (1)    The Paris Agreement, adopted under the United Nations Framework Convention on
          Climate Change approved by the Union on 5 October 2016 4 (the ‘Paris Agreement’),
          aims to strengthen the response to climate change, among other means by making
          investment flows consistent with a pathway towards low greenhouse gas emissions
          and climate-resilient development.
   (2)    On 11 December 2019, the Commission adopted its Communication to the European
          Parliament, the European Council, the Council, the European Economic and Social
          Committee and the Committee of the Regions ‘The European Green Deal’ 5. The
          European Green Deal represents a new growth strategy that aims to transform the
          Union into a fair and prosperous society, with a modern, resource-efficient and
          competitive economy where there are no net emissions of greenhouse gases in 2050
          and where economic growth is decoupled from resource use. The implementation of
          the European Green Deal requires that investors are offered clear, long-term signals to
          avoid stranded assets and to raise sustainable finance.
   (3)    Regulation (EU) 2016/1011 establishes EU Climate Transition Benchmarks and EU
          Paris-aligned Benchmarks. The methodology of those benchmarks is based on the
          commitments laid down in the Paris Agreement. It is necessary to specify the
          minimum standards applicable to both types of benchmarks. EU Climate Transition
          Benchmarks and EU Paris-aligned Benchmarks pursue similar objectives but vary in
          their level of ambition. Most of the minimum standards should therefore be common
          to both types of benchmarks, but the thresholds should vary depending on the type of
          benchmark.
   (4)    There are currently not enough data to assess the carbon footprint resulting from
          decisions made by sovereign entities. Sovereign-based issuances should therefore not
   3
          OJ L 171, 29.6.2016, p. 1.
   4
          Council Decision (EU) 2016/1841 of 5 October 2016 on the conclusion, on behalf of the European
          Union, of the Paris Agreement adopted under the United Nations Framework Convention on Climate
          Change (OJ L 282, 19.10.2016, p. 1).
   5
          COM(2019) 640 final.
EN                                                   6                                                   EN
 ---pagebreak---         be eligible constituents of EU Climate Transition Benchmarks and EU Paris-aligned
        Benchmarks.
   (5)  Because the methodology of EU Climate Transition Benchmarks and EU Paris-aligned
        Benchmarks is based on the commitments laid down in the Paris Agreement, it is
        necessary to use the 1,5°C scenario, with no or limited overshoot, referred to in the
        Special Report on Global Warming of 1,5°C from the Intergovernmental Panel on
        Climate Change (IPCC)6 (‘IPCC scenario’). That IPCC scenario is in line with the
        Commission's objective to reach net zero greenhouse gas (GHG) emissions by 2050,
        set out in the European Green Deal. To be in line with the IPCC scenario, investments
        should be reallocated from fossil-fuels dependent activities to green or renewable
        activities and the climate impact of those investments should improve year after year.
   (6)  The sectors listed in Sections A to H and Section L of Annex I to Regulation (EC)
        No 1893/2006 of the European Parliament and of the Council7, including the oil, gas,
        mining and transportation sectors, are sectors that highly contribute to climate change.
        To ensure that EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks
        provide a realistic image of the real economy, including of sectors that should actively
        reduce GHG emissions to make the objectives of the Paris Agreement attainable, the
        exposure of those benchmarks to those sectors should not be less than the exposure of
        their underlying investable universe. That requirement should, however, only apply to
        EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks that are equity
        benchmarks, to ensure that equity investors who support the objectives of the Paris
        Agreement maintain their influence, via engagement and voting, on the transition of
        the company towards more sustainable activities.
   (7)  The calculation of GHG emissions should be comparable and consistent. It is therefore
        necessary to lay down rules about how often those calculations should be updated and,
        where applicable, about the currency to be used.
   (8)  A decarbonisation based only on Scope 1 and Scope 2 GHG emissions could lead to
        counterintuitive results. It should therefore be clarified that the minimum standards for
        EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks should not
        only consider direct emissions from companies, but also emissions assessed on a
        life-cycle basis and thus including Scope 3 GHG emissions. However, due to the
        insufficient quality of data currently available for Scope 3 GHG emissions, it is
        necessary to set out an appropriate phase-in timeline and to allow for the use of fossil
        fuel reserves for a limited period of time. That phase-in timeline should be based on
        the list of economic activities set out in Regulation (EC) No 1893/2006.
   (9)  Benchmark administrators should have the possibility to overweight companies based
        on the decarbonisation objectives set by those companies. Specific rules relating to
        decarbonisation targets reported by individual companies should therefore be set out.
   (10) EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks should
        demonstrate their ability to decarbonize themselves from one year to the other. That
   6
        IPCC, 2018: Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of
        1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context
        of strengthening the global response to the threat of climate change, sustainable development, and
        efforts to eradicate poverty.
   7
        Regulation (EC) No 1893/2006 of the European Parliament and of the Council of 20 December 2006
        establishing the statistical classification of economic activities NACE Revision 2 and amending Council
        Regulation (EEC) No 3037/90 as well as certain EC Regulations on specific statistical domains (OJ
        L 393, 30.12.2006, p. 1).
EN                                                         7                                                    EN
 ---pagebreak---         minimum decarbonisation trajectory should be calculated using the IPCC scenario.
        Furthermore, in order to prevent greenwashing, conditions for the deviation from the
        decarbonisation trajectory and for the right to continue to label a benchmark as an EU
        Climate Transition Benchmark or as an EU Paris-aligned Benchmark should be
        specified.
   (11) The main parameter to calculate the decarbonisation trajectory should be the GHG
        intensity, because that parameter ensures comparability across sectors and is not
        biased for or against a particular sector. To calculate the GHG intensity, the market
        capitalisation of the concerned company is necessary. However, where benchmarks
        apply to fixed-income corporate instruments, the market capitalisation might not be
        available for companies that do not have equity securities listed. It should therefore be
        laid down that where EU Climate Transition Benchmarks or EU Paris-aligned
        Benchmarks apply to fixed-income corporate instruments, benchmark administrators
        should be allowed to use GHG emissions calculated on an absolute basis, rather than
        on the basis of GHG intensity.
   (12) To ensure comparability and consistency of GHG emission data, rules on how to
        calculate changes in GHG intensity or absolute GHG emissions should be laid down.
   (13) Attaining the objectives of the Paris Agreement requires that both EU Climate
        Transition Benchmarks and EU Paris-aligned Benchmarks have a baseline percentage
        reduction in exposure to GHG intensive assets compared to their parent benchmarks or
        underlying investment universes. However, that percentage reduction should be more
        significant for EU Paris-aligned Benchmarks, which, by design, are more ambitious
        than EU Climate Transition Benchmarks.
   (14) EU Paris-aligned Benchmarks should not contribute to the promotion of investments
        in financial instruments issued by companies that violate global standards such as the
        United Nations Global Compact (UNGC) Principles. It is therefore necessary to lay
        down specific exclusion criteria that are based on climate-related or other
        environmental, social and governance (ESG) considerations. EU Climate Transition
        benchmarks should comply with those exclusion criteria by 31 December 2022, in
        accordance with the timeline set out in Regulation (EU) 2016/1011.
   (15) In order to support a decrease in the use of polluting energy sources and a proper
        transition to renewable ones, it is also appropriate that companies that derive more
        than a set percentage of their revenues from coal, oil or gas are excluded from the EU
        Paris-aligned Benchmarks. The changes in the share of those energy sources out of the
        global primary energy supply from 2020 to 2050, as expected in the IPCC scenario,
        should be taken into account to set out those specific exclusions. In particular,
        according to table 2.6 of the Special Report on Global Warming of 1,5°C from the
        IPCC, between 2020 and 2050, the use of coal is expected to drop between 57 % and
        99 % and the use of oil between 9 % and 93 %, while the use of gas is expected to go
        up by 85 % or to drop by 88 %. Gas can be used during the transition to a low carbon
        economy, in particular as a replacement for coal, which explains its wider expected
        range of evolution, although the expected median decrease of its use is 40 %. For the
        same reason, it is necessary to exclude companies that derive more than a set
        percentage of their revenues from electricity generation activities.
   (16) To ensure transparency about the methodology used for the EU Climate Transition
        Benchmarks and EU Paris-aligned Benchmarks, it is appropriate to lay down rules
        about the necessary disclosures pertaining to the decarbonisation trajectory and the
        data sources for both categories of benchmarks. For the same reason, it is appropriate
EN                                              8                                                 EN
 ---pagebreak---           to lay down disclosure requirements for benchmark administrators that use estimations
          for GHG emissions data, whether or not provided by external data providers.
   (17)   In order to support the harmonisation of the methodology for EU Climate Transition
          Benchmarks and EU Paris-aligned Benchmarks, it is appropriate to lay down rules
          about the quality and accuracy of data sources,
   HAS ADOPTED THIS REGULATION:
                                               CHAPTER I
                                            DEFINITIONS
                                                   Article 1
                                                  Definitions
   For the purposes of this Regulation, the following definitions shall apply:
   (a)       ‘greenhouse gas (GHG) emissions’ means greenhouse gas emissions as defined in
             Article 3, point (1), of Regulation (EU) 2018/842 of the European Parliament and of
             the Council8;
   (b)       ‘absolute greenhouse gas (GHG) emissions’ means tonnes of CO2 equivalent, as
             defined in Article 2, point (7), of Regulation (EU) No 517/2014 of the European
             Parliament and of the Council9;
   (c)       ‘greenhouse gas (GHG) intensity’ means absolute GHG emissions divided by
             millions of Euros in enterprise value including cash;
   (d)       ‘enterprise value including cash’ or ‘EVIC’ means the sum, at fiscal year-end, of the
             market capitalisation of ordinary shares, the market capitalization of preferred shares,
             and the book value of total debt and non-controlling interests, without the deduction
             of cash or cash equivalents;
   (e)       ‘investable universe’ means the set of all investable instruments in a given asset class
             or group of asset classes;
   (f)       ‘base year’ means the first of a series of years in a benchmark.
   8
           Regulation (EU) 2018/842 of the European Parliament and of the Council of 30 May 2018 on binding
           annual greenhouse gas emission reductions by Member States from 2021 to 2030 contributing to
           climate action to meet commitments under the Paris Agreement and amending Regulation (EU) No
           525/2013 (OJ L 156, 19.6.2018, p. 26).
   9
           Regulation (EU) No 517/2014 of the European Parliament and of the Council of 16 April 2014 on
           fluorinated greenhouse gases and repealing Regulation (EC) No 842/2006 (OJ L 150, 20.5.2014,
           p. 195).
EN                                                     9                                                    EN
 ---pagebreak---                                            CHAPTER II
          MINIMUM STANDARDS FOR THE DESIGN OF THE
                          BENCHMARK METHODOLOGY
                                            SECTION 1
    MINIMUM STANDARDS COMMON FOR EU CLIMATE TRANSITION
           BENCHMARKS AND EU PARIS-ALIGNED BENCHMARKS
                                               Article 2
                                   Reference temperature scenario
   Administrators of EU Climate Transition Benchmarks and administrators of EU Paris-aligned
   Benchmarks shall use the 1,5°C scenario, with no or limited overshoot, referred to in the
   Special Report on Global Warming of 1,5°C from the Intergovernmental Panel on Climate
   Change (IPCC) as the reference temperature scenario to design the methodology to construct
   those benchmarks.
                                               Article 3
                                     Equity allocation constraint
   EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks that are based on
   equity securities admitted to a public market in the Union or in another jurisdiction, shall have
   an aggregated exposure to the sectors listed in Sections A to H and Section L of Annex I to
   Regulation (EC) No 1893/2006 that is at least equivalent to the aggregated exposure of the
   underlying investable universe to those sectors.
                                               Article 4
                     Calculation of GHG intensity or absolute GHG emissions
   1.       Administrators of EU Climate Transition Benchmarks and administrators of EU
            Paris-aligned Benchmarks shall calculate the GHG intensity or, where applicable, the
            absolute GHG emissions of those benchmarks using the same currency for all of their
            underlying assets.
   2.       Administrators of EU Climate Transition Benchmarks and administrators of EU
            Paris-aligned Benchmarks shall recalculate the GHG intensity and the absolute GHG
            emissions of those benchmarks on a yearly basis.
                                               Article 5
            Phase-in of Scope 3 GHG emissions data in the benchmark methodology
   1.       The benchmark methodology for EU Climate Transition Benchmarks or EU
            Paris-aligned Benchmarks shall include Scope 3 GHG emissions data in the
            following way:
            (a)   As of the date of application of this Regulation, Scope 3 GHG emissions data
                  for at least the energy and mining sectors referred to in Divisions 05 to 09 and
                  19 and 20 of Annex I to Regulation (EC) No 1893/2006;
            (b)   within two years from the date of application of this Regulation, Scope 3 GHG
                  emissions data for at least the transportation, construction, buildings, materials
EN                                                 10                                                EN
 ---pagebreak---                    and industrial sectors referred to in Divisions 10 to 18, 21 to 33, 41, 42 and 43,
                   49 to 53 and Division 81 of Annex I to Regulation (EC) No 1893/2006;
            (c)    within four years from the date of application of this Regulation, Scope 3 GHG
                   emissions data for all other sectors referred to in Annex I to Regulation (EC)
                   No 1893/2006.
   2.       For the purposes of paragraph 1, point (a), from the date of application of this
            Regulation to 31 December 2021, administrators of EU Climate Transition
            Benchmarks and administrators of EU Paris-aligned Benchmarks may use fossil fuel
            reserves, where they demonstrate that they cannot calculate nor estimate Scope 3
            GHG emissions data.
                                                 Article 6
               Companies setting and publishing GHG emission reduction targets
   Administrators of EU Climate Transition Benchmarks and administrators of EU Paris-aligned
   Benchmarks may increase in those benchmarks the weight of the issuers of the constituent
   securities that set and publish GHG emission reduction targets, where the following
   conditions are fulfilled:
   (a)      the issuers of the constituent securities publish consistently and accurately their
            Scope 1, 2 and 3 GHG emissions;
   (b)      the issuers of the constituent securities have reduced their GHG intensity or, where
            applicable, their absolute GHG emissions, including Scope 1, 2 and 3 GHG
            emissions, by an average of at least 7 % per annum for at least three consecutive
            years.
   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 7
                                  Setting a decarbonisation trajectory
   1.       The decarbonisation trajectory for EU Climate Transition Benchmarks and EU
            Paris-aligned Benchmarks shall have the following targets:
            (a)    for equity securities admitted to a public market in the Union or in another
                   jurisdiction, at least 7 % reduction of GHG intensity on average per annum;
            (b)    for debt securities other than those issued by a sovereign issuer, where the
                   issuer of those debt securities has equity securities admitted to a public market
                   in the Union or in another jurisdiction, at least 7 % reduction of GHG intensity
                   on average per annum or at least 7 % reduction of absolute GHG emissions on
                   average per annum;
            (c)    for debt securities other than those issued by a sovereign issuer, where the
                   issuer of those debt securities does not have equity securities admitted to a
                   public market in the Union or in another jurisdiction, at least 7 % reduction of
                   absolute GHG emissions on average per annum.
   2.       The targets referred to in paragraph 1 shall be calculated geometrically, which shall
            mean that the annual minimum 7 % reduction of GHG intensity or of absolute GHG
            emissions for year ‘n’ shall be calculated based on the GHG intensity or absolute
            GHG emissions for the year n-1, in a geometric progression from the base year.
EN                                                  11                                                EN
 ---pagebreak---    3. Where the average EVIC of the constituent securities of the benchmark has increased
      or decreased during the last calendar year, the EVIC of each constituent shall be
      adjusted by dividing it by an enterprise value inflation adjustment factor. That
      enterprise value inflation adjustment factor shall be calculated by dividing the
      average EVIC of the benchmark constituents at the end of a calendar year by the
      average EVIC of the benchmark constituents at the end of the previous calendar year.
   4. Administrators of EU Climate Transition Benchmarks and administrators of EU
      Paris-aligned Benchmarks shall, for each year in which the targets laid down in
      paragraph 1 are not achieved, compensate for those missed targets by upwardly
      adjusting the targets in their decarbonisation trajectory for the following year.
   5. Administrators of EU Climate Transition Benchmarks and administrators of EU
      Paris-aligned Benchmarks shall no longer be able to label their benchmarks as such
      where:
      (a)    the targets laid down in paragraph 1 are not achieved in a given year and the
             target miss is not compensated in the following year; or
      (b)    the targets laid down in paragraph 1 are not achieved on three occasions in any
             consecutive 10-year period.
      Benchmark administrators may relabel a benchmark as an EU Climate Transition
      Benchmark or as an EU Paris-aligned Benchmark where that benchmark meets the
      decarbonisation trajectory target for two consecutive years following the loss of the
      label, unless that benchmark lost that label twice.
                                          Article 8
                Change in GHG intensity and absolute GHG emissions
   1. The change in GHG intensity or absolute GHG emissions shall be calculated as the
      percentage change between, on the one hand, the weighted average GHG intensity or
      absolute GHG emissions of all constituents of the EU Climate Transition Benchmark
      or the EU Paris-aligned Benchmark at the end of year ‘n’ and, on the other hand, the
      weighted average GHG intensity or absolute GHG emissions of all constituents of
      the benchmarks at the end of year n-1.
   2. Benchmark administrators shall use a new base year whenever significant changes in
      the calculation methodology of GHG intensity or absolute GHG emissions occur.
      For the purposes of the first subparagraph, a new base year shall mean the year
      against which the decarbonisation trajectory referred to in Article 7 is calculated.
      The selection of a new base year shall be without prejudice to the rules laid down in
      Article 7(5).
EN                                           12                                              EN
 ---pagebreak---                                            SECTION 2
           MINIMUM STANDARDS FOR EU CLIMATE TRANSITION
                                       BENCHMARKS
                                             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).
                                           SECTION 3
      MINIMUM STANDARDS FOR EU PARIS-ALIGNED BENCHMARKS
                                             Article 11
     Baseline reduction of GHG intensity or absolute GHG emissions for EU Paris-aligned
                                           Benchmarks
   The GHG intensity or, where applicable, absolute GHG emissions for EU Paris-aligned
   Benchmarks, including Scope 1, 2 and 3 GHG emissions, shall be at least 50 % 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 12
                           Exclusions for EU Paris-aligned Benchmarks
   1.       Administrators of EU Paris-aligned Benchmarks shall exclude all of the following
            companies from those benchmarks:
            (a)   companies involved in any activities related to controversial weapons;
            (b)   companies involved in the cultivation and production of tobacco;
            (c)   companies that benchmark administrators find in violation of the United
                  Nations Global Compact (UNGC) principles or the Organisation for Economic
                  Co-operation and Development (OECD) Guidelines for Multinational
                  Enterprises;
EN                                               13                                             EN
 ---pagebreak---         (d)    companies that derive 1 % or more of their revenues from exploration, mining,
               extraction, distribution or refining of hard coal and lignite;
        (e)    companies that derive 10 % or more of their revenues from the exploration,
               extraction, distribution or refining of oil fuels;
        (f)    companies that derive 50 % or more of their revenues from the exploration,
               extraction, manufacturing or distribution of gaseous fuels;
        (g)    companies that derive 50 % or more of their revenues from electricity
               generation with a GHG intensity of more than 100 g CO2 e/kWh.
        For the purposes of point (a), controversial weapons shall mean controversial
        weapons as referred to in international treaties and conventions, United Nations
        principles and, where applicable, national legislation.
   2.   Administrators of EU Paris-aligned Benchmarks shall exclude from those
        benchmarks any companies that are found or estimated by them or by external data
        providers to significantly harm one or more of the environmental objectives referred
        to in Article 9 of Regulation (EU) 2020/852 of the European Parliament and of the
        Council10, in accordance with the rules on estimations laid down in Article 13(2) of
        this Regulation.
   3.   Administrators of EU Paris-aligned Benchmarks shall disclose in their benchmark
        methodology any additional exclusion criteria they use and which are based on
        climate-related or other environmental, social and governance (ESG) factors.
                                        CHAPTER III
                    TRANSPARENCY AND ACCURACY
                                              Article 13
                         Transparency requirements for estimations
   1.   In addition to the requirements laid down in Annex III to Regulation (EU)
        2016/1011, administrators of EU Climate Transition Benchmarks and administrators
        of EU Paris-aligned Benchmarks shall comply with the following requirements:
        (a)    administrators of EU Climate Transition Benchmarks and administrators of EU
               Paris-aligned Benchmarks that use estimations that are not based on data
               provided by an external data provider, shall formalise, document and make
               public the methodology upon which such estimations are based, including:
               (i)   the approach that they have used to calculate GHG emissions, and the
                     main assumptions and the precautionary principles underlying those
                     estimations;
               (ii)  the research methodology to estimate missing, unreported, or
                     underreported GHG emissions;
               (iii) the external data sets used in the estimation of missing, unreported or
                     underreported GHG emissions;
   10
      Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the
      establishment of a framework to facilitate sustainable investment, and amending Regulation (EU)
      2019/2088 (OJ L 198, 22.6.2020, p. 13).
EN                                                14                                                  EN
 ---pagebreak---              (b)    administrators of EU Climate Transition Benchmarks and administrators of EU
                    Paris-aligned Benchmarks that use estimations that are based on data provided
                    by an external data provider shall formalise, document and make public all of
                    the following information:
                    (i)   the name and contact details of the data provider;
                    (ii)  the methodology used and the main assumptions and precautionary
                          principles, where available;
                    (iii) a hyperlink to the website of the data provider, and to the relevant
                          methodology used, where available.
   2.        For the purposes of Article 12(2), administrators of EU Paris-aligned Benchmarks
             shall comply with the following requirements:
             (a)    administrators of EU Paris-aligned Benchmarks that use estimations that are
                    not based on data provided by an external data provider shall formalise,
                    document and make public the methodology upon which such estimations are
                    based, including:
                    (i)   the approach and research methodology that they have used, and the
                          main assumptions and precautionary principles underlying those
                          estimations;
                    (ii)  the external data sets used in the estimation;
             (b)    administrators of EU Paris-aligned Benchmarks that use estimations that are
                    based on data provided by an external data provider shall formalise, document
                    and make public all of the following information:
                    (i)   the name and contact details of the data provider;
                    (ii)  the methodology used and the main assumptions and precautionary
                          principles, where available;
                    (iii) a hyperlink to the website of the data provider, and to the relevant
                          methodology used, where available.
                                                 Article 14
                              Disclosure of the decarbonisation trajectory
   Administrators of EU Climate Transition Benchmarks and administrators of EU Paris-aligned
   Benchmarks shall formalise, document and make public the decarbonisation trajectories of
   those benchmarks, the base year used for the determination of those decarbonisation
   trajectories, and where the targets laid down in the decarbonisation trajectory are not met, the
   reasons for that failure and the steps that they will take to reach the adjusted target referred to
   in Article 7(4).
                                                 Article 15
                                      Accuracy of the data sources
   1.        Administrators of EU Climate Transition Benchmarks and administrators of EU
             Paris-aligned Benchmarks shall ensure that data on Scope 1, 2 and 3 GHG emissions
             are accurate, in accordance with global or European standards, such as the Product
             Environmental Footprint (PEF), the Organisation Environmental Footprint (OEF)
EN                                                   15                                                EN
 ---pagebreak---             methods11, the Corporate Value Chain (Scope 3) Accounting and Reporting
            Standard12, the EN ISO 14064 or the EN ISO 14069.
   2.       For the purposes of paragraph 1, administrators of EU Climate Transition
            Benchmarks and administrators of EU Paris-aligned Benchmarks shall disclose in
            their methodology the standard used.
   3.       Administrators of EU Climate Transition Benchmarks and administrators of EU
            Paris-aligned Benchmarks shall ensure the comparability and quality of GHG
            emissions data.
                                             CHAPTER IV
                                      FINAL PROVISIONS
                                                  Article 16
                                    Entry into force and application
   This Regulation shall enter into force on the twentieth day following that of its publication in
   the Official Journal of the European Union.
   This Regulation shall be binding in its entirety and directly applicable in all Member States.
   Done at Brussels, 17.7.2020
                                                    For the Commission
                                                    The President
                                                    Ursula VON DER LEYEN
   11
           Commission Recommendation 2013/179/EU of 9 April 2013 on the use of common methods to
           measure and communicate the life cycle environmental performance of products and organisations (OJ
           L 124, 4.5.2013, p. 1).
   12
           Value Chain (Scope 3) Accounting and Reporting Standard (September 2011), supplement to the GHG
           Protocol Corporate Accounting and Reporting Standard.
EN                                                    16                                                      EN