PAI (Principal Adverse Impact) indicators identify and measure the negative impacts of investments, providing investors with a comprehensive understanding of the sustainability profile of their portfolios. Increasingly LPs expect funds to integrate ESG frameworks into their decision-making, demanding sustainability risks and impacts are a core part of the investment decision and monitoring process.

The SFDR developed the PAI indicators to capture the impact materiality of

Unlike the EU Taxonomy, which aims to promote positive environmental contributions, PAIs focus on capturing potential adverse impacts and environmental risks of investments.

The regulatory technical standards of the SFDR (Sustainable Finance Disclosure Regulation) provide the technical rules and PAI indicators, including 18 mandatory and 46 additional indicators on environmental and social issues. The SFDR Level 2 now requires FMPs to disclose their first PAI reporting by June 30, 2023. To find out more about what this means for FMPs, check out our blog post on SFDR Level 2.