With this proposed regulation, the EC aims at regulating the construction of benchmark indices that seek to ensure a representation of what a market compatible with a well below 2°C scenario would look like today, in order to protect investors from greenwashing and support the transition to a low carbon economy.
2° Investing Initiative strongly supports the general objective of preventing greenwashing in sustainable finance, promoting the re-allocation of investment towards climate-friendly assets, and supporting the development of climate-aligned indices.
However, our analysis conclude that the proposed regulation is too far from contributing to these objectives to be amended. Besides, the current approach of the EC to the development of technical guidance creates a permanent risk for the quality of the outputs.
2° Investing Initiative therefore recommends policymakers to abandon the proposed regulation.
From a technical perspective the approaches prescribed (low-carbon and positive carbon impact indices as defined by the text) suffer from major flaws. They actually do not represent a “2°C market”. Moreover, they are based on metrics that are both misleading and impossible to calculate. More critically, the proposed regulation mis-represents investments based on climate-themed indexes as ‘impact investing’ vehicles (designed to generate tangible environmental benefits in the real economy), thus in practice amplifying risks of greenwashing.
From the perspective of the policymaking process, the proposed regulation is also highly problematic. It promotes the approach and data of a selected boutique consultancy and its client, ignoring other relevant approaches, without any prior visible due diligence on the relevance and feasibility of the approach. Finally, it appears that the current process in place (Technical Expert Group) is not suited to deliver successfully a regulation aligned with the stated policy goals, due to bias in the composition and undue pressure from DG FISMA on consulted experts.
Full version of our feedback in the attachment (10 pages)
******** The feedback relates to the proposed regulation on low carbon benchmarks, not the "institutional investors' and asset managers' duties". There seem to be a confusion on the EC website. *****
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