The European Commission Action Plan: An assessment of the reform areas for PRI signatories provides an overview of the main reform areas. Action 5 focuses on developing sustainability benchmarks. 

Key points 

  • The Commission has published a proposed regulation to amend the existing framework of the benchmark regulation to promote the transparency of benchmark methodologies and features. The intent is to allow users to better assess the quality of sustainability and ESG benchmarks.
  • In addition, the Commission proposes the creation of two new benchmarks that should reflect companies’ carbon footprint and give investors greater information on an investment portfolio’s carbon footprint.
  • The low-carbon benchmark would be based on a standard ‘decarbonising’ benchmark. The underlying stocks would be selected based on their carbon emissions relative to the component stocks in a standard benchmark.
  • A more “ambitious” positive-carbon impact benchmark would comprise stocks that are judged to be aligned with the Paris Agreement objective of limiting global warming to below 2°C.
  • The purpose of the regulation is to prevent green-washing by providing investors with better information on companies’ carbon footprints and CO2 reductions. In addition, it will ensure that comparable information is available on ESG factors, that are related to assets in which the index invests.
  • The Commission’s technical expert group will, following a stakeholder consultation, publish a report on the design and methodology of low-carbon benchmarks by mid-2019.


Benchmarks play an important role in the investment landscape. They can be used to create new investment products, to determine asset allocation strategies and to measure performance. The European Commission is seeking to make benchmarks a reliable tool for investors who want to invest in low-carbon strategies. They will do this by establishing a new category of benchmarks, which itself includes two distinct types of benchmarks.

1. Low-carbon benchmark

This is based on decarbonising a standard benchmark, for example an equity index. The underlying stocks would be selected based on their emissions compared to the stocks on a standard benchmark.

2. Positive carbon impact benchmark

This should be aligned with the objective in the Paris Agreement of keeping global warming to less than 2°C above pre-industrial levels. The underlying stocks are selected on account of having carbon savings that exceed the stocks’ residual carbon footprint.


The European Commission will establish minimum standards for the methodology of these benchmarks in a Commission delegated act.

It is important to note that the proposed regulation will strengthen the explanations to be provided about how ESG factors are reflected in benchmarks that claim to pursue or take into account ESG objectives. The Commission is empowered to further specify the information to be given, following the work of the Technical expert group.

The initiatives on investors’ duties (Action 7) and benchmarks and disclosure (Actions 5 and 9) are linked: where asset managers and institutional investors market products as pursuing a low-carbon objective, they would be required to designate an appropriate benchmark, such as the EU low-carbon index or the positive carbon impact index, as a reference. Where no index reflecting the asset managers’ low-carbon strategy is available on the market, the asset managers would need to provide a detailed explanation of how they intend to ensure continued adherence to the low-carbon objective.


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    The European Commission Action Plan: An assessment of the reform areas for PRI signatories

    August 2018