Delegated Regulation 2020/1816 requires benchmark administrators to include an explanation of ESG factor integration in their Benchmark Statement. This regulation is part of the regulatory mechanisms governing ESG disclosure for PAB and CTB indices.

Paris-Aligned Benchmarks (PAB) impose additional sector exclusions compared to Climate Transition Benchmarks (CTB). For thermal coal, the revenue threshold is set at 1%. This means that companies deriving more than 1% of their revenue from thermal coal are excluded from PAB indices, which is not the case for CTBs.

Climate Transition Benchmarks (CTB) require an initial carbon intensity reduction of at least 30% compared to the parent investable universe. This requirement is lower than that of Paris-Aligned Benchmarks (PAB), which require a reduction of at least 50%. This difference reflects distinct philosophies: CTBs adopt a gradual transition approach compatible with the 'well below 2°C' objective, while PABs aim for immediate alignment with the 1.5°C Paris Agreement target.

A $1,000 investment in a PAB index results in a reduction of 1,429 kilograms of CO2, which is 77% less than an equivalent investment in the parent index. This significant reduction is explained by the strict exclusion criteria and climate ambition of PABs.

This statement is true. A European Commission clarification of April 2023 establishes that passive funds tracking a PAB or CTB are automatically considered as having an Article 9 sustainable investment objective. This creates a regulatory 'safe harbour' that stimulates the adoption of these indices.

This statement is false. CTB indices have an average tracking error of 0.5% to 1.5%, which allows them to maintain diversification close to the parent index. In contrast, PAB indices have an average tracking error of 2% to 4% due to their investment universe being reduced by approximately 50%. This difference is explained by the stricter sector exclusions of PABs.