Principal Adverse Impact (PAI) Indicators

What is the purpose of PAIs? 

The purpose of the Principal Adverse Impact indicators (PAIs) is to assess and disclose the negative impacts on sustainability resulting from a fund's investment processes. PAIs provide a standardised framework for evaluating various aspects, including climate, environment, social, and employee considerations. These indicators help investors and end-users understand the potential adverse effects of their investments beyond surface-level sustainability claims. By requiring the disclosure of PAIs, the Sustainable Finance Disclosure Regulation (SFDR) aims to increase transparency, enable informed decision-making, and ensure that investment strategies align with sustainability goals. PAIs play a crucial role in identifying and addressing the hidden externalities associated with supposedly sustainable investment products.

What are the main PAIs?

The PAIs are a vital component of the SFDR, designed to assess and disclose the negative impacts on sustainability within fund investments. The SFDR outlines a comprehensive set of 64 PAIs, consisting of both mandatory and voluntary indicators.

The mandatory PAIs cover various aspects of climate, environment, social, and employee considerations. For climate and environment, indicators include greenhouse gas emissions, biodiversity, water, and waste. These indicators allow for a thorough evaluation of a fund's environmental footprint, including its contributions to climate change, impact on ecosystems, and resource consumption.

In terms of social and employee aspects, the mandatory indicators encompass factors such as gender pay gap, board gender diversity, and exposure to controversial weapons. These indicators shed light on social inequalities, diversity within company leadership, and ethical considerations related to investment activities.

Additionally, the SFDR allows for voluntary PAIs, expanding the scope of assessment. These voluntary indicators cover areas such as emissions, energy performance, water, waste, material emissions, biodiversity, and social factors like workplace safety and human rights policies. By including voluntary indicators, the SFDR encourages fund managers to go beyond the minimum requirements and provide additional transparency on sustainability-related aspects.