Step 1: Understanding EU Paris-Aligned and Climate Transition Benchmarks
The EU Paris-Aligned Benchmarks (PAB) and EU Climate Transition Benchmarks (CTB) were established to help investors align their portfolios with the Paris Agreement goals. They aim to guide investments towards a low-carbon economy and provide standards for climate-related financial products.
Step 2: Key Characteristics of the Benchmarks
Paris-Aligned Benchmark (PAB): Designed to align with a 1.5°C temperature rise scenario.
Climate Transition Benchmark (CTB): Allows for a broader alignment with climate transition objectives, aiming for a less stringent pathway than the PAB.
Step 3: Common Features
Both benchmarks:
Require reductions in carbon intensity compared to a standard benchmark.
Aim to support the transition towards a low-carbon economy.
Use a sector-relative approach, meaning companies’ performances are compared to their sector averages to account for differences in sectoral emission profiles.
Step 4: Verification with ESG Investing References
Both the EU PAB and CTB use a relative approach to compare a company's performance to its sector average, ensuring that high-emission sectors still contribute to the transition: "These benchmarks use sector-relative decarbonization approaches, comparing companies within the same sector to ensure fair and achievable targets across different industries".
Conclusion: The EU Paris-Aligned Benchmarks and EU Climate Transition Benchmarks both use a relative approach by comparing a company's performance to its sector average.
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