European securities regulator approves ESG benchmark label to deter greenwashing

An ESG benchmark label applicable to countries outside Europe would help avoid greenwashing, the European securities regulator said in a comment letter published on Friday.

The letter of the European Securities and Markets Authority intervened in response to the European Commission’s consultation on ESG regulations applicable to benchmarks administered outside the EU.

“The introduction of an EU ESG benchmark label would be an additional support tool against greenwashing,” ESMA said in its letter, and administrators in the European Union and other countries would “benefit of a form of quality label”.

ESMA has also advocated for the removal of restrictions on the use of third-country benchmarks after defining a risk-based approach that ensures a level playing field between the EU and other regulators, the letter says. from ESMA.

He noted that EU benchmarks regulation covers a wide range of benchmarks used in the EU, but “so far very few jurisdictions have followed a similar regulatory approach regarding the provision and the use of benchmarks” outside the EU.

EU Landmarks Regulations began in January 2018, and benchmarks used in other countries are considered compliant under a grace period that ends in January 2023, unless extended.

EU regulators are considering updating the regulations, focusing on two key areas: the introduction of two categories or labels of climate benchmarks, and transparency through ESG disclosure requirements.

“Many investors currently rely on so-called ESG benchmarks to justify the sustainability of their portfolio or the investment products they offer. However, the comparability and reliability of existing ESG benchmarks are affected. by a lack of harmonization of their methodologies and the divergent levels of ambition of the objectives pursued”, indicates the EU consultation.

The European Commission has contracted PricewaterhouseCoopers to survey asset managers, pension funds and other benchmark users about the current level of satisfaction with ESG benchmarks and the merits of introducing new benchmarks EU ESG. This work was completed in April and the next step is for the European Commission to report its recommendations to the European Parliament and the Council, which will have to vote on any changes.

Mary I. Bruner