EU Technical Expert Group: Report on Climate Benchmarks

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The main objectives of the new climate benchmarks are to: (i) allow a significant level of comparability of climate benchmarks methodologies while leaving benchmarks’ administrators with an important level of flexibility in designing their methodology; (ii) provide investors with an appropriate tool that is aligned with their investment strategy; (iii) increase transparency on investors’ impact, specifically with regard to climate change and the energy transition; and (iv) disincentivize greenwashing.


While conceptually, the two types of climate benchmarks are closely linked to the objectives of the Paris Agreement, the TEG wants to clearly acknowledge the fact that the current state of methodologies and available issuer-level data does not allow for an evident and irrefutable conversion of climate scenarios into detailed and informed portfolio construction methodologies at the time of writing this report. In order to ensure the highest level of ambition for climate benchmarks, the TEG therefore largely relies on already available proxies and currently evolving methodologies, sometimes already used by market participants. In this context, the TEG also strongly recommends a review of all minimum standards after a three-year period to ensure the highest level of ambition for climate benchmarks in accordance with potential future enhancements in the state of the research and practices around scenario analysis applied to investment strategies.

Definition and use cases

A climate benchmark is defined as an investment benchmark that incorporates – next to financial investment objectives - specific objectives related to greenhouse gas (GHG) emission reductions and the transition to a low-carbon economy - based on the scientific evidence of the IPCC - through the selection and weighting of underlying constituents.

A climate benchmark can serve as: 

  • Underlying for passive investment strategies; 
  • An investment performance benchmark for GHG emission-related strategies;
  • An engagement tool;
  • A policy benchmark to help guide strategic asset allocation (SAA).

While benchmarks incorporating constraints or objectives related to GHG emissions have primarily been built around a (tail) risk reduction objectives, EU CTBs and EU PABs have broader ambitions. Investors using these new types of benchmarks not only intend to hedge against climate transition risks (Risk objective) but also have the ambition to direct their investments towards opportunities related to the energy transition (Opportunity objective). Note that only transition risks and opportunities are considered as part of the minimum standards for both indices. The physical risks associated with climate change are however included in the disclosure recommendations.