Delegated Regulation on minimum standards for climate reference values 2020/1818

Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020, covered by Council Regulation (EU) 2016/1011 of the European Parliament and of the Council, concerning minimum standards for EU benchmarks for investments in the transformation of the economy in the context of climate change and EU benchmarks for investments in line with the Paris Agreement by agreement.

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union.

Publication date

3. 12. 2020

This Regulation supplements Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments as regards minimum standards for two types of benchmarks:

• EU benchmarks for investments in the transformation of the economy in relation to climate change: These benchmarks aim to direct investments to areas that contribute to the transition to a low-carbon economy.
• EU benchmarks for investments in line with the Paris Agreement: These benchmarks are more ambitious and focus on investments that are fully in line with the goals of the Paris Agreement.

The regulation provides minimum standards for methodology of these reference values, with most standards common to both species but with different threshold values.

Key aspects of the regulation:

• Reference temperature scenario: The reference value methodology must be based on a 1.5°C warming scenario with no or limited exceedance as reported by the Intergovernmental Panel on Climate Change (IPCC).
• Restriction on allocation of shares: Equity-based benchmarks must have at least as much exposure to sectors with high greenhouse gas emissions (such as oil, gas, mining and transportation) as their underlying investable environment.
• Mandatory inclusion of range 3 greenhouse gas emissions: Emissions of range 3 greenhouse gases, which include emissions from the entire life cycle of products and services, must be gradually included in the methodology of reference values. The regulation establishes a schedule for the gradual introduction of these emissions into the methodology.
• Favoring companies with decarbonisation targets: Benchmark administrators may give more weight to companies that have set and published greenhouse gas emission reduction targets and are demonstrably achieving them.
• Minimum procedure leading to decarbonisation: Benchmarks must demonstrate the ability to reduce carbon emissions from one year to the next. For equity securities, a minimum annual decrease in the intensity of greenhouse gas emissions of 7 % is established.
• Basic emission intensity reduction: EU reference values for investments in the transformation of the economy must have a greenhouse gas emission intensity of at least 30 % lower than their investment-friendly environment. In the case of EU reference values for investments in accordance with the Paris Agreement, this reduction is set at 50 %.
• Exclusion criteria: The EU's investment benchmarks in line with the Paris Agreement must exclude companies that violate global standards (such as the UNGC principles), engage in controversial activities (such as weapons production) and have a high share of revenues from fossil fuels or electricity generation with high emission intensity.
• Transparency and accuracy: The Regulation establishes transparency requirements regarding the methodology, including information on data sources and estimates. Benchmark administrators must ensure the accuracy and comparability of greenhouse gas emissions data.

This regulation represents a significant step towards harmonization of the methodology of reference values related to climate change and increasing transparency and comparability information on the environmental impact of investments.