Handbook of climate transition benchmarks, Paris-aligned ...

1 Handbook OF. climate transition BENCHMARKS, Paris-aligned . BENCHMARK AND BENCHMARKS' ESG DISCLOSURES. December 1 20th 2019. Disclaimer This report represents the overall view of the members of the Technical Expert Group, and although it represents such a consensus, it may not necessarily, on all details, represent the individual views of member institutions or experts. The views reflected in this report are the views of the experts only. This report does not reflect the views of the European Commission or its services. The content of this report shall not prejudge the content of any future acts adopted by the European Commission.

2 2. List of Technical Expert Group Members .. 5. Introduction to Handbook .. 7. 1. The 7% Reduction Trajectory .. 8. Is the technical recommendations of at least 7% on average per annum greenhouse gas .. (GHG) intensity reduction at the portfolio or the company level? .. 8. Is the technical recommendation of at least 7% on average per annum greenhouse gas .. (GHG) intensity reduction calculated arithmetically or geometrically? .. 8. How can benchmark administrators achieve the at least 7% on average per annum GHG .. intensity reduction? .. 8. Is alignment with the Paris Agreement assessed at index, sector or company level?

3 9. Do the climate transition Benchmarks encourage companies to become net zero'? .. 10. Why do the trajectories start at -30% and -50% GHG intensity compared to the investable .. universe? .. 10. What to do in case the Enterprise Value computation for a company returns a negative result?11. How does the Enterprise Value inflation adjustment work? .. 12. Do EU CTB and EU PAB work the same way in equities and fixed income? .. 12. 2. Terminology .. 13. Carbon intensity, CO2e intensity, GHG intensity: which term is the preferred one?.. 13. Equity Exposure constraint, Sector Allocation Constraint, Weighting Constraint: which term.

4 Is the preferred one?.. 13. Can the EU climate transition Benchmark and the EU Paris-aligned Benchmark be applied .. outside the European Union? .. 13. 3. Anti-Greenwashing Measures .. 14. How can the Equity Exposure Constraint' prevent greenwashing of equity indices? .. 14. Does the Equity Exposure Constraint force indices to hold brown' constituents? .. 14. How do the EU PAB activities exclusions work? .. 14. What was the rationale for the revenue thresholds of the EU PAB activity exclusions? .. 15. 4. Data Sources and Estimation Techniques .. 16. How to estimate missing or underreported GHG emissions data?

5 16. Should scope 2 GHG emissions data be reported market-based or location-based? .. 16. How to estimate firm specific scope 3 GHG emissions data? .. 16. 5. Related Classifications .. 18. Which sector classifications shall be used? .. 18. What to do in case of unusual' classification decisions by the respective sector .. classification scheme? .. 18. 3. How are EU CTB and EU PAB related to the EU Taxonomy .. 18. 6. ESG 20. Can you explain the relevance of the disclosure requirements in section Are these .. mandatory disclosures required of all benchmarks?

6 20. Shall ESG ratings be compared at the aggregate or Key Performance Indicator (KPI) level? . 20. 7. Further Aspects .. 21. Is the technical recommendations of at least 7% on average per annum reduction related .. to the United Nations Emissions Gap report published in November 2019? .. 21. Can asset managers also employ a climate transition investing approach or is this approach .. limited to benchmark administrators? .. 21. Some of my colleagues have little background knowledge in finance. How can I explain .. climate transition Benchmarks to them, maybe with a metaphor?

7 22. Now my colleague understands how climate transition Benchmarks work. But why would .. the most polluting companies, especially those outside the EU, listen to the .. benchmark administrators and their investors? .. 23. References .. 24. Appendix A: Example calculation of the 7% on average .. per annum reduction, geometrically calculated, .. for a 2020 Base 25. Appendix B: NACE to BICS, GICS, ICBS & TRBC Matching .. 26. NACE to BICS (Source: Bloomberg) .. 26. NACE to GICS (Source: MSCI and S&P) .. 104. NACE to ICB (Source: FTSE) .. 125. NACE to TRBC (Source:Refinitiv).

8 148. 4. List of Technical Expert Group Members Members of the Technical Expert Group are listed below. Members of the Benchmarks Working Group are in bold. Organisation Name Appointed in a personal capacity Andreas HOEPNER. Appointed in a personal capacity Paolo MASONI. Appointed as stakeholder representative Brenda KRAMER. Appointed as ad hoc expert Dawn SLEVIN. allianz global Investors Steffen HOERTER. Bloomberg Nadia HUMPHREYS1. BNP Paribas asset management Helena VI ES FIESTAS. Borsa Italiana Sara LOVISOLO. Carbone 4 Jean-Yves WILMOTTE. Cassa Depositi e Prestiti Pierfrancesco LATINI.

9 CDP (Carbon Disclosure Project) Nico FETTES. climate Bond Initiative Sean KIDNEY. EACB Tanguy CLAQUIN. EFFAS Jos Luis BLASCO. EIT climate KIC Sandrine DIXSON-DECLEVE. EnBW AG Thomas KUSTERER. Eurelectric Jes s MART NEZ P REZ. Finance Watch Ludovic SUTTOR SOREL2. Green/Sustainable Finance Cluster Germany Karsten LOEFFLER. GRI ( global Reporting Initiative) Eszter VITORINO. ICMA Nicolas PFAFF. KfW Bankengruppe Karl Ludwig BROCKMANN. Luxembourg Stock Exchange Flavia MICILOTTA3. Mirova Manuel COESLIER. MSCI Veronique MENOU4. Nordea Aila AHO. PRI Nathan FABIAN.

10 Refinitiv/Thomson Reuters Elena PHILIPOVA (Rapporteur). RICS Ursula HARTENBERGER5. SCOR Mich le LACROIX. SEB Marie BAUMGARTS. Swiss Re Ltd Claudia BOLLI. Unilever Michel PINTO. WiseEuropa Maciej BUKOWSKI. WWF Jochen KRIMPHOFF. 1. Replacing Curtis Ravenel 2. Replacing Nina Lazic and Mireille Martini 3. Replacing Jane Wilkinson 4. Occasionally replaced by Sebastien Lieblich 5. Replacing Zsolt Toth 5. Directly invited members European Banking Authority Pilar GUTI RREZ, Piers HABEN, Mira LAMRIBEN, Slavka ELEY. European Central Bank Ana Sofia MELO, Fabio TAMBURRINI.