- Principal Adverse Impacts
Context, scope and implications:
The overall objective of the RTS is to ensure that the entities disclose relevant information regarding their adherence to the “do not significantly harm” principle where their financial products invest in sustainable investments. The objective is to inform end-investors about how the product does not significantly harm the environmental objectives it is not contributing to. The ESAs are of the view that this should be facilitated for those entities which consider the PAIs of their investment decisions since they will already have incurred the costs of assessing their investment decisions against the indicators provided in the annex 1 of the RTS.
According to the upcoming Taxonomy Regulation art. 19(1)e, the technical screening criteria developed by the Technical Expert Group to assess under which conditions an economic activity contributes to a sustainable environmental objective should, where feasible, use these sustainability indicators to assess PAIs from these RTS.
Information on PAIs is required to be disclosed first on the entities websites as from 10 March 2021. Any entities that employ less than 500 persons or that are parent undertakings of a group employing less than 500 persons on a consolidated basis during the financial year may opt not to consider PAIs. If they decide to not consider PAIs, they will still need to make a clear statement about this decision, explain the reasons and whether and when they intend to comply. Consideration of PAIs is compulsory for large entities which must disclose on their website the statement in the format prescribed by ESMA.
Disclosures of PAI will also be required in offering documents and periodic statements as from 30 December 2022. Where information in periodic reports includes quantifications of principal adverse impacts on sustainability factors, that information may also rely on the provisions of these regulatory technical standards .
Elements of disclosure
Annex 1 provides a PAI statement template structured in three parts including adverse sustainability indicators and associated metrics. One table provides 16 mandatory environmental indicators and 16 mandatory social indicators. Two tables provide 11 additional environmental indicators and 7 additional social indicators. Entities must disclose metrics for all mandatory indicators, at least one additional environmental indicator and one additional social indicator as well as any other PAI deemed to be relevant.
The content is proposed to be structured as follows: