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.
