EU's Report on Benchmarks' ESG disclosure

Reality and consistency check

Lead authors

Hong My Nguyen

Green & Sustainable Investment Solutions

Cédric Merle

Green & Sustainable Finance Expert

Thibaut Cuillère

Head of ENR/Real Assets Research

Natixis Green & Sustainable Hub is delighted to share with you our EU‘s Climate Benchmarks special report: “Reality and consistency check”

Published in September 30th, the EU TEG Report on Benchmarks defined minimum technical criteria for the newly created EU Climate Benchmarks, as well as ESG disclosure requirements for all benchmarks.


Less under the spotlight than the EU Taxonomy and EU Green Bond standard, the EU's Climate Benchmarks represent nevertheless a major milestone for sustainable capital markets as they should bring more clarity and homogeneity in the current climate/low carbon indices universe.

  • What does Paris Alignment mean at a portfolio level?
  • Are proposed criteria usable for investors ? Why, how, under which conditions ?
  • Reality check : are existing major climate indices (MSCI, Euronext) compliant with those criteria ?

Our Natixis GSH report intends to address those questions by providing you with in-depth analysis of EU requirements and highlighting their implications for the market players.

This report is a third of a series, following our EU Taxonomy special report and EU Green Bond Standard report.

ESG Disclosure

Main takeaways

The report details technical advice on minimum disclosure requirements to improve transparency and comparability of information across benchmarks. This section of the report applies not only to climate or esg benchmarks but to all bencharks.

For each asset class, the report provides a template of disclosure indicators to be provided by benchmarks administrators. The disclosure requirements are not only climate-related, they cover a variety of ESG indicators.

The objective of the TEG is to enhance and align the level of ESG transparency of benchmark methodologies and make it easier for market players to compare indices in order to choose the most adequate benchmarks for their investment strategy.

However, the ESG disclosure requirements are not mandatory for non ESG oriented indices. In our view, this Non-disclosure Option greatly limits the reach of the proposed regulation.

Overview of our feedback

Overall, we greatly welcome the initiative of ESG disclosure requirement across benchmarks. Albeit not mandatory in practice for non ESG oriented indices (“non-disclosure option”), it will undoubtedly urge benchmark administrators not only to disclose ESG performance of existing benchmarks but also to integrate more broadly ESG factors in the future ones.

Proposed templates. We welcome the efforts in favor of clarity and simplicity. However, information given is too wide for all benchmarks and not enough detailed for more significant benchmarks pursuing ESG objectives which might prevent from improving ESG information for investors.

Use of external data. We would like to highlight the issues that a reliance on third-party data providers in the sustainability field can cause. First, relying on data providers creates an unfair level playing-field that favors big players that will be able to buy the data necessary in order to conduct their ESG-related business. This might have negative effects on the financing of the transition and could jeopardize the additional estimated investment effort of 180 billion euros a year that is needed to achieve the 2030 target. Second, the methodologies used by the data providers are far to be homogeneous which poses a problem of comparability and transparency for the end investor. On the credit corporate perimeter, the correlation between ESG scores provided by 2 major agencies is around 12% while the correlation of credit rating reaches 88% for the same perimeter !

We would suggest a mandatory disclosure for significant benchmarks. While ESG benchmarks are obliged to disclose their ESG reporting, non-ESG strategies can avoid this disclosure thanks to the “non-disclosure option”. We acknowledge the difficulty to force the entire market to implement disclosure process and agree with the stepwise approach. However, we think this initiative could go a step further by making the disclosure requirement mandatory also for non-ESG with significant impact (with an AuM above a certain threshold for instance).

We would recommend regulators to provide more guidance regarding the methodologies to be used, especially in terms of climate scenario analysis (carbon budget, breakdown of carbon budget with sectors/geography refinement, carbon pricing, penetration of CCS and other carbon dioxide removal solutions), and disclosure of the key assumptions. Indeed, without a minimum standardization, any administrator will be able to assess the alignment of its benchmark to the Paris Agreement according to a methodology that could be from an external provider or built in-house, preventing any third party (investor or regulator) to compare different products claiming their alignment to a +1.5°C scenario.
A solution could be for the regulators to list a number of existing methodologies as the ones to be applied by administrators.