ISDA and AFME support the European Commission’s efforts to enhance transparency and comparability regarding low carbon and positive carbon impact benchmarks. We welcome the draft proposal for a Regulation.
ISDA and AFME believe that in order for capital to flow towards low carbon or positive carbon impact economic activities, a flexible approach needs to be taken in the development of EU low carbon and positive carbon impact benchmarks, encouraging innovation that can meet sustainability and investment goals. Many of our comments in this comment paper should be seen in this context.
We welcome the European Commission’s preferred approach based on minimum standards for harmonizing the methodology associated with low carbon and positive carbon impact benchmarks, although we believe that this this preference is most clearly evident in the European Commission’s draft proposal as it addresses Level 2 measures. An explicit statement supporting the principle in the Level 1 text would provide further comfort as to the eventual Regulation’s compatibility with the necessity for market participants to be able to innovate and develop the market for these benchmarks.
We also believe that the proposal would benefit from greater clarity that the obligations imposed on low carbon and positive carbon impact benchmark administrators to explain their methodology relate solely to carbon emissions, and not more broadly to other ESG-related criteria.
ISDA and AFME provide a number of comments on the detail of the methodology, including the view that benchmarks administrators should be able to obtain low carbon impact and positive carbon impact benchmark designation on an optional basis at this stage, and should not be mandatorily required to do so (if falling within the low carbon impact or positive carbon impact definitions in the proposal). This would allow administrators to adapt and innovate as our understanding and technology in this area develops. We also believe that inclusion of ‘scope 3’ emissions should be optional at this stage (given the limitations manifest regarding the data behind such a criterion).
We note that the proposal as drafted would come into force and apply from the day following publication in the Official Journal (OJ) of the EU. We believe it would be more realistic, efficient and proportionate to allow a transition period for compliance, such that compliance would be required no sooner than 12 months after publication in the OJ of final Level 2 measures.
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