13 December 2023

EU Platform: Draft report on EU taxonomy-aligning benchmarks (TABs)

With the introduction of these voluntary benchmarks, the Platform on Sustainable Finance (PSF) aims to initiate a discourse on the pivotal role the Taxonomy could assume in shaping climate and environmental benchmarks.

Executive Summary
The suggested benchmarks do not discard alternative approaches to leveraging the Taxonomy in the development of benchmarks. Innovation in this domain is imperative for effectively channelling capital towards sustainable investments and realising our goals in mobilising financial resources for financing the transition to a net zero, resilient, circular, and environmentally sustainable future.

The EU Taxonomy-Aligning Benchmarks without and with exclusions (EU TAB and EU TABex) are inspired by the success of EU Paris-Aligned Benchmarks (EU PABs), which grew to €116bn in assets under management in less than three years.2 Since 2019, Paris Aligned Benchmarks (PABs) have played a significant role in financial markets, aiming to facilitate the shift towards a low-carbon economy. They achieve this by directing capital towards sustainable options, selecting and weighting companies within PAB indices to collectively adhere to a decarbonisation trajectory aligned with the Paris Agreement's goal of limiting global temperature rise to 1.5°C above pre-industrial level.
The main objectives of the proposed benchmarks are to (a) show how a significant level of comparability of Taxonomy-aligning benchmarks methodologies could be achieved while leaving benchmarks’ administrators with an important level of flexibility in designing their methodology; (b) provide investors with an appropriate tool to align the Taxonomy with their investment strategy; (c) increase transparency on investors’ impact, specifically with regard to climate change and the environmentally sustainable Capital Expenditures (CapEx) required for the energy transition; and (d) disincentivise greenwashing. Ultimately, the Platform on Sustainable Finance aims at supporting the development of innovative tools that contribute to the decarbonisation and greening of investment portfolios.

Context. While conceptually the two types of Taxonomy-aligning benchmarks are closely linked to the PSF objectives of the Paris Agreement and build on the success of the EU PABs, the PSF acknowledges the fact that the current state of methodologies and available issuer and issuance-level data on Taxonomy-alignment does not allow for an evident and irrefutable conversion of climate scenarios and Taxonomy objectives into detailed and informed portfolio construction methodologies at the time of writing this report. Consequently, the PSF stresses that a review of all minimum standards after a three-year period would be needed to ensure the highest level of ambition for climate benchmarks and Taxonomy-alignment in accordance with potential future enhancements in the state of data availability, research insights and investment practices. The PSF also recognises the intrinsic difficulties of lacking the necessary historical data. A hurdle that all first comers ought to overcome.
EU Taxonomy-Aligning Benchmarks are defined as benchmarks where the underlying assets are selected, weighted or excluded in such a manner that (i) the resulting benchmark portfolio is on a scaling environmentally sustainable CapEx trajectory, (ii) while the non-environmentally sustainable CapEx proportion is on a decarbonisation trajectory and is also constructed in accordance with the minimum standards laid down in the delegated acts of EU PABs. EU TABs with exclusions also include specific activity exclusion thresholds for fossil fuel related activities...

 more at EU Platform

© European Commission