Low Carbon Benchmark Regulation

The Low Carbon Benchmarks Regulation (Regulation (EU) 2019/2089) is a Regulation adopted by the European Parliament and Council that amends the Benchmarks Regulation (Regulation (EU) 2016/1011). It introduces two categories of climate benchmarks:

EU Climate Transition Benchmarks (EU CTBs); and
EU Paris-aligned Benchmarks (EU PABs).

The Regulation requires benchmark administrators to disclose information on the specific characteristics of these benchmarks, including how their methodologies pursue decarbonisation or alignment with the objectives of the Paris Agreement.

The Regulation is complemented by Commission Delegated Regulation (EU) 2020/1818, which sets out minimum standards for the construction of EU CTBs and EU PABs. This Delegated Regulation was amended by Commission Delegated Regulation (EU) 2025/1775.

The main characteristics of the two benchmarks are the following:

The EU Climate Transition Benchmark (EU CTB) is a benchmark where the underlying assets are selected, weighted or excluded so that the resulting benchmark portfolio follows a “decarbonisation trajectory”. The Low Carbon Benchmark Regulation defines this trajectory as a “measurable, science-based and time-bound movement towards alignment with the objectives of the Paris Agreement”. This is ensured by selecting and weighting the underlying constituents to achieve a 30% reduction in carbon intensity versus the investable universe, followed by a 7% year-on-year decarbonisation trajectory. EU CTBs, and therefore also EU PABs, must exclude companies:
- involved in any activities related to prohibited weapons;
- involved in the cultivation and production of tobacco;
- found in violation of the UN Global Compact principles or the OECD Guidelines for Multinational Enterprises.

The EU Paris Aligned Benchmark (EU PAB) is a benchmark specifically aligned with the goals of the Paris Agreement, which seeks to limit the rise in global temperatures to well below 2°C above pre-industrial levels and to pursue efforts to limit the increase to 1.5°C. This includes a 50% reduction in carbon intensity versus the investable universe, followed by a 7% year-on-year decarbonisation. In addition to the exclusions applicable to EU CTBs (see above), EU PABs must exclude companies that derive:
- 1% or more of their revenues from hard coal and lignite;
- 10% or more of their revenues from oil fuels;
- 50% or more of their revenues from gaseous fuels;
- 50% or more of their revenues from electricity generation with a GHG intensity of more than 100 g CO₂e/kWh.

Companies significantly harming one or more environmental objectives of the EU Taxonomy must also be excluded. Visit the EU Taxonomy section for further information.

The Low Carbon Benchmarks Regulation amends the Benchmarks Regulation (Regulation (EU) 2016/1011) by introducing the regulatory framework, definitions, disclosure requirements and labelling conditions for EU CTBs and EU PABs.

EU Climate Transition Benchmarks (CTBs) and EU Paris-aligned Benchmarks (PABs) are used well beyond index-tracking funds. They now serve as reference points across the EU sustainable finance framework, so they matter to financial market participants (FMPs) in several practical ways.

Checking the benchmarks you use.

Since 1 January 2026, only administrators that are authorised, registered, recognised or endorsed under the Benchmarks Regulation can provide an EU CTB or PAB, whether they are based in the EU or not. The benchmark’s name must include “CTB” or “PAB”. Firms should confirm on the ESMA register that the administrator of any CTB or PAB they use has the right status. This applies equally to indices provided from outside the EU.

Naming funds.

ESMA’s guidelines on funds’ names use the benchmark exclusions as a minimum standard. Funds with environmental, impact or sustainability-related terms in their name must apply the PAB exclusions. Funds using transition, social or governance-related terms must apply the CTB exclusions. This applies whether or not the fund tracks a benchmark.

Disclosing under SFDR.

Products with a carbon-reduction objective are expected to refer to an EU CTB or PAB where one is available. Pre-contractual and periodic disclosures should be consistent with the benchmark’s published methodology.

Understanding the methodology.

The required carbon reduction compared with the wider market, the 7% annual decarbonisation trajectory and the exclusions all shape the portfolio. They can lead to sector concentration, differences in performance from broad market indices, and portfolio turnover at each rebalancing. Firms should understand these effects, and how far the benchmark relies on estimated emissions data, before integrating a CTB or PAB into their investment process and explaining it to clients.

Providing data.

Financial institutions that issue securities may themselves be included in these benchmarks. The emissions data they report feeds into benchmark construction, so its quality and availability matter.

The EU climate benchmarks were designed to label indices, but their minimum standards and exclusion lists are now a reference point across the EU sustainable finance framework.

SFDR

Under the Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088, “SFDR”), Article 9(3) applies to financial products with a reduction in carbon emissions as their objective. Where no EU Climate Transition Benchmark (EU CTB) or EU Paris-aligned Benchmark (EU PAB) is available, the financial market participant (FMP) must explain in detail how that objective will continue to be pursued in line with the Paris Agreement. Where such a benchmark is used, it must indicate where the benchmark’s methodology can be found. The Commission has confirmed that products pursuing a carbon emission reduction objective by tracking an EU PAB or EU CTB are deemed to have a sustainable investment objective and do not need to provide that detailed explanation.

SFDR 2.0

The Commission’s proposal of 20 November 2025 would replace the Article 8 and 9 regime with three product categories: Sustainable, Transition and ESG Basics. Each category would require at least 70% of assets to contribute to the product’s objective and would apply mandatory exclusions based on the PAB and CTB criteria. The Commission proposal would also treat products tracking an EU CTB or EU PAB as meeting both requirements. How far this benchmark route should extend is one of the points under negotiation.

ESMA Guidelines on funds’ names

Funds using ESG or sustainability-related terms in their names must apply the benchmark exclusions. Funds using “transition”, “social” or “governance”-related terms must apply the EU CTB exclusions. Funds using “environmental”, “impact” or “sustainability”-related terms must apply the EU PAB exclusions, including the fossil fuel revenue thresholds. The Guidelines have applied since 21 November 2024 to new funds and since 21 May 2025 to existing funds.

EU Taxonomy

Administrators of EU PABs must exclude companies they find to significantly harm one or more of the Taxonomy’s environmental objectives. Visit the EU Taxonomy section for further information.

Visit the SFDR section for further information.

March 2018: The European Commission announced forthcoming measures to enhance the ESG transparency of benchmark methodologies and an initiative to develop standards for the methodology of low carbon benchmarks in the European Union. A Technical Expert Group (TEG) was set up to assist the European Commission to achieve these objectives;
September 2019: The TEG published the “Climate benchmarks and benchmarks’ ESG disclosures” report containing the TEG’s recommendations on minimum standards and standardised disclosures;
9 December 2019: The EU Low Carbon Benchmark Regulation was published in the Official Journal of the European Union;
10 December 2019: The EU Low Carbon Benchmark Regulation entered into force;
30 April 2020: Benchmark administrators had to comply with the ESG disclosure requirements in their benchmark statements;
17 July 2020: The European Commission adopted new rules setting out minimum technical requirements for the methodology of EU low carbon benchmarks (Delegated Regulation (EU) 2020/1818), together with the delegated acts on benchmarks’ ESG disclosures;
3 December 2020: Delegated Regulation (EU) 2020/1818 was published in the Official Journal of the European Union, entering into force on 23 December 2020;
31 December 2022: Deadline for EU Climate Transition Benchmarks to comply with the exclusion criteria;
May 2024: ESMA issued its final guidelines on funds using ESG- or sustainability-related terms in their names. These require funds using such terms to apply the CTB or PAB exclusions, depending on the terms used;
28 March 2025: The Platform on Sustainable Finance published an updated handbook on climate benchmarks and benchmarks’ ESG disclosures;
19 May 2025: Regulation (EU) 2025/914 amending the Benchmark Regulation was published in the Official Journal of the European Union. It entered into force on 8 June 2025;
21 May 2025: Deadline for existing funds to align with the ESMA fund naming guidelines or change their names;
28 August 2025: The European Commission adopted Delegated Regulation (EU) 2025/1775, replacing the “controversial weapons” exclusion in the climate benchmark minimum standards with a definition of “prohibited weapons”. It was published in the Official Journal on 30 December 2025;
20 November 2025: The European Commission published its proposal to revise the SFDR. All three proposed product categories would include mandatory exclusions referring back to the CTB and PAB criteria;
1 January 2026: Regulation (EU) 2025/914 became applicable. The Benchmark Regulation now covers only critical and significant benchmarks, EU CTBs, EU PABs and certain commodity benchmarks;
24 June 2026: The Council published its negotiating mandate on the SFDR revision;
October 2026: The European Parliament’s ECON Committee adopted its report and mandate to open trilogue negotiations, with the first trilogue expected in October. Co-legislators are targeting political agreement by the end of 2026.

In depth

Deep dive into the key characteristics of the EU sustainable finance regulation