Principal Adverse Impact

Definition

The most significant negative effects that investment decisions or financial advice have on sustainability factors relating to environmental, social, and employee matters, respect for human rights, anti-corruption, and anti-bribery matters. Financial market participants must disclose PAI statements under SFDR Article 4.

What are Principal Adverse Impacts?

Principal Adverse Impacts (PAIs) are the most significant negative effects that investment decisions or financial advice have on sustainability factors. These factors cover environmental matters (GHG emissions, biodiversity, water, waste), social and employee matters (gender pay gap, board diversity, human rights), and governance matters (anti-corruption, anti-bribery).

Disclosure Requirements

Under SFDR Article 4, financial market participants with more than 500 employees must publish a PAI statement on their website, disclosing how they consider and mitigate principal adverse impacts. Smaller firms may choose to comply or explain. The PAI statement must follow the template in the SFDR Delegated Regulation (Commission Delegated Regulation (EU) 2022/1288), covering 14 mandatory indicators and a selection of additional indicators.

Mandatory PAI Indicators

The 14 mandatory indicators include: GHG emissions (Scope 1, 2, and 3), carbon footprint, GHG intensity of investee companies, exposure to fossil fuels, non-renewable energy consumption and production, energy consumption intensity, biodiversity impact, water emissions, hazardous waste, UNGC/OECD violations, gender pay gap, board gender diversity, controversial weapons exposure, and GHG intensity of sovereigns.