HYEM - Proceed With Caution: Challenges In Embedding The Precautionary Principle In Paris-Aligned Benchmarks

Summary

• In 2020, the European Commission introduced the principle into the sustainable finance regulatory framework including for climate indexes, as labelled ‘Paris-aligned’ or ‘climate transition’ benchmarks (PABs and CTBs).
• A prominent approach suggested in the literature is the 95th quantile estimation, which effectively assumes that the non-reporting companies have worst-in-class emissions.
• We aim for a pragmatic and balanced implementation of the precautionary principle.

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