November 7, 2023

Understanding SFDR Mandatory and Additional PAI Indicators

A cornerstone of Sustainable Finance Disclosure Regulation (SFDR) reporting is the principal adverse impact (PAI) indicators, which are a set of metrics that intend to show how certain business investments affect the environment and broader community. In contrast to the EU Taxonomy, which measures good environmental economic activities, PAIs measure sustainability risks. SFDR requires the disclosure of PAI indicators, which are divided into “mandatory indicators” and “additional indicators.”

Although broadly covering the same topics, the type and number of indicators that are included in PAI statements differ for investee companies, real estate assets, and sovereigns and supranationals. The indicators are split into climate and environmental-related indicators as well as social and employee, respect for human rights, anti-corruption and anti-bribery matters. 

The SFDR requires:

  • Investee companies report on 14 mandatory indicators (9 environmental and 5 social/governance), regardless of sector, in addition to 1 environmental and 1 social/human rights-related metric from a list of 33 additional indicators.
  • Real estate assets report on 2 mandatory indicators and can opt in to disclose other indicators  from a list of 5 additional indicators.
  • Sovereigns and supranationals report on 2 mandatory indicators and opt in to disclose other indicators from a list of 8 additional indicators. 

The purpose of the additional indicators is to allow for flexibility, acknowledging that some industries and company types may track different metrics compared to others. Below is a breakdown of these additional indicators.

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SFDR’s Additional PAI Indicators

01Indicators applicable to investee companies  – Climate and other environment-related indicators
  • Greenhouse Gas (GHG) emissions
  • Carbon footprint
  • GHG intensity of investee companies
  • Exposure to companies active in the fossil fuel sector
  • Share of non-renewable energy consumption and production
  • Energy consumption intensity per high-impact climate sector
  • Activities negatively affecting biodiversity-sensitive areas
  • Emissions to water
  • Hazardous waste ratio
  • Emissions of inorganic pollutants
  • Emissions of air pollutants
  • Emissions of ozone depletion substances
  • Investments in companies without carbon emission reduction initiatives
  • Breakdown of energy consumption by type of non-renewable sources of energy
  • Water usage and recycling
  • Investments in companies without water management policies
  • Exposure to areas of high water stress
  • Investments in companies producing chemicals
  • Land degradation, desertification, soil sealing
  • Investments in companies without sustainable land/agriculture practices
  • Investments in companies without sustainable oceans/seas practices
  • Non-recycled waste ratio
  • Natural species and protected areas
  • Deforestation
  • Share of securities not certified as green under a future EU legal act setting up an EU Green Bond Standard
02Indicators applicable to investee companies – Social and employee, respect for human rights, anti-corruption, and anti-bribery matters
  • UN Global Compact/OECD guideline violations
  • UN Global Compact/OECD guideline compliance monitoring system
  • Unadjusted gender pay gap
  • Board gender diversity
  • Exposure to controversial weapons (anti-personnel mines, cluster munitions, chemical weapons, and biological weapons)
  • Investments in companies without workplace accident prevention policies
  • Rate of accidents
  • Number of days lost to injuries, accidents, fatalities, or illness
  • Lack of a supplier code of conduct
  • Lack of grievance/complaints handling mechanism related to employee matters
  • Insufficient whistleblower protection
  • Incidents of discrimination
  • Excessive CEO pay ratio
  • Lack of a human rights policy
  • Lack of due diligence
  • Lack of processes and measures for preventing trafficking in human beings
  • Operations and suppliers at significant risk of incidents of child labour
  • Operations and suppliers at significant risk of incidents of forced or compulsory labour
  • Number of identified cases of severe human rights issues and incidents
  • Lack of anti-corruption and anti-bribery policies
  • Cases of insufficient action taken to address breaches of standards of anti-corruption and anti-bribery
  • Number of convictions and amount of fines for violation of anti-corruption and anti-bribery laws
03Indicators applicable to investments sovereigns and supranationals
  • GHG intensity
  • Investee countries subject to social violations
  • Average income inequality score
  • Average freedom of expression score
  • Average human rights performance
  • Average corruption score
  • Non-cooperative tax jurisdictions
  • Average political stability score
  • Average rule of law score
04Indicators applicable to investments in real estate assets
  • Exposure to fossil fuels through real estate assets
  • Exposure to energy-inefficient real estate assets
  • GHG emissions
  • Energy consumption intensity
  • Waste production in operations
  • Raw materials consumption for new construction and major renovations
  • Land artificialization