FAQ · 5 min read
Sustainable finance vocabulary: SFDR, PAI and DNSH
Three acronyms from EU sustainable finance that increasingly appear in questionnaires and term sheets worldwide — decoded in plain language.
SFDR — the Sustainable Finance Disclosure Regulation — is an EU framework requiring financial market participants to disclose how they consider sustainability, both at entity level and per product.
PAI — Principal Adverse Impacts — are indicators of the negative sustainability effects of investments: things like carbon intensity, biodiversity-sensitive area exposure or pay gap figures. Data demands from PAI-style indicators are why many funds now request portfolio company ESG data systematically.
DNSH — 'Do No Significant Harm' — is the concept that an investment contributing to one environmental objective should not significantly harm the others. It underpins how sustainable products demonstrate integrity.
Why does this matter outside the EU? Because capital is global. Funds with European links carry SFDR-driven data requirements into markets like India — appearing as extended due diligence questionnaires and portfolio reporting requests.
If you are a fund, map which obligations reach you before designing data collection. If you are a company raising capital, expect these acronyms in investor ESG requests — and treat a well-organised ESG data room as part of your fundraising infrastructure.
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