By Ophélie Mortier,
Chief Sustainable Investment Officer


On June 13, the European Commission disclosed a new Sustainable Finance Package, which further demonstrates the ambition of the European Union to foster the financing of the transition.

We will come back on the details of those different proposals and their practical consequences for the investors. In a nutshell, the package contains:

  • A couple of recommendations on ‘transition finances’ (i.e. how to accelerate the financing of the transition)
  • A proposed regulation for ESG-rating providers to ensure a level playing field
  • A guidance regarding the links between the SFDR and Taxonomy
  • A new set of criteria regarding the four remaining taxonomy objectives
  • A consultation for reviewing the CSRD criteria, with a focus on materiality assessment.


In the meantime, we wanted to revisit the last released European Commission responses to the ESA’s SFDR queries. There are three key takeaways to remember:

  1. There is no further definition of a sustainable investment
  2. The binary accountancy of sustainable investment is accepted
  3. PAI consideration needs to extend beyond mere disclosure

You’ll find some further clarifications below, and DPAM’s stance on these 3 key points.


The European Commission maintains its stance on a transparency and disclosure framework, without prescribing a particular method for how an investment contributes to an environmental and/or social goal. The European Commission further refers to the policy choice enshrined in the SFDR to leave the responsibility to financial market participants to carry out their own assessment.

The risk of greenwashing thus continues due to the variability of approaches. Additionally, local authorities may adopt their own minimum rules, resulting in further fragmentation of the market.

Two significant initiatives should be highlighted to shed light on the issue:

    • ESMA’s consultation on fund name requirements, launched in November 2022 with implementation expected in 2024.
    • The French market authority’s proposed revision of SFDR for Article 8 and 9 products, which stipulates certain minimum standards for integration into a label regime.


1.1 DPAM’s definition of ‘sustainable investments’

The regulatory framework identifies three key components of a sustainable investment:

    • Contribution to an environmental (aligned or not with the Taxonomy) and/or social goal
    • Ensuring minimum social safeguards
    • Adherence to the principle of ‘do not significantly harm’


DPAM has defined sustainable investment by relying on its 20-year track record in sustainable investments and the SFDR pre-contractual disclosure template. this definition includes:

    • Economic activities that align with the Taxonomy.
    • Economic activities that contribute to an environmental objective other than the Taxonomy.
    • Economic activities that contribute to a social objective.


The activities aligned with the Taxonomy are clearly defined by the European Commission Taxonomy concerning climate change adaptation and mitigation goals. These will be expanded on with four upcoming environmental objectives that will be added to the Taxonomy (i.e. circular economy, pollution, water effects and biodiversity).

Regarding environmental and social objectives, DPAM refers to the Sustainable Development Goals, defined by the United Nations, which have become a recognised international framework.

Economic activities are considered to contribute to environmental objectives provided that the net positive contribution (considering both negative and positive contributions) to the environmental sustainable development objectives is, on average, positive.

Similarly, the economic activities are considered to contribute to social objectives provided that the net positive contribution to the social sustainable development objectives is, on average, positive.

In practice, all holdings are evaluated according to the following four options:

    • A use-of-proceeds instrument aligned with the reference standards: a use-of-proceeds instrument is acknowledged as a sustainable instrument, provided it is fully aligned with the ICMA principles and DPAM monitoring methodology. Specifically, this means that:


a) Green bonds and SDG bonds = Environmental objective

b) Social bonds = Social objective

    • A taxonomy-aligned instrument: the taxonomy alignment is calculated based on the technical screening criteria as defined by the EU Taxonomy for the eligible activities of the issuer. The alignment to the Taxonomy must exceed 10% to be considered an instrument aligned with the Taxonomy.
    • An environmental objective as defined by the framework of UN SDGs: several SDGs linked to the environment can be grouped together (i.e. SDGs 6,7,9,11,12,13,14,15). The issuer must have a net positive contribution to the environmental objectives on average to be considered an instrument with an environmental objective.
    • A social objective as defined by the framework of UN SDGs: several SDGs linked to social aspects can be grouped together (i.e. SDGs 1,2,3,4,5,8,10,16,17). The issuer must have a net positive contribution to the social objectives on average to be considered an instrument with a social objective.


The various stages in the construction of sustainable portfolios will first ensure that the social minimum safeguards are upheld by focusing on the issuer’s behaviour. Simultaneously, the ‘do not significantly harm’ principle is applied during various screenings based on activities and sectors. The contribution to an environmental and/or social objective is assessed from the singular perspective of the products and services developed by the issuer, alongside its behaviour.

Figure 1

Source: DPAM 2023


As a reminder, two approaches are considered for the accountability of a sustainable investment:

    • At the level of a specific activity i.e., only the contributing activity of the issuer is accounted for as a sustainable investment – this poses a serious challenge when one aims to achieve 100% sustainable investments for Article 9 products.
    • At the level of the company (also known as ‘the binary approach’) i.e., as soon as the company is considered to be contributing to an environmental and/or social objective, the entire investment is considered as a sustainable investment, regardless of the exact percentage of the activity contributing to the objective.


The European Commission confirmed the feasibility of both approaches, which is crucial information for Article 9 products as these still stand a chance of existing as a result!


2.2 DPAM’s approach

DPAM has adopted the binary approach. This means that, as soon as an issuer is evaluated as contributing to an environmental or social objective, the entire position is included in the calculation of the environmental or social objective.

Please keep in mind that DPAM upholds the principle of no double counting i.e., as soon as an investment is evaluated as contributing to an objective aligned with the taxonomy, to an environmental objective other than taxonomy aligned, or to a social objective, it is classified into a single category and not taken into account for any other potential objectives it might meet as well.

As a reminder, please find our commitment regarding the sustainable investment objective according to the classification of our products.

Figure 2

Source: DPAM 2023


There’s been considerable confusion and a lack of clarity surrounding the concept of “taking into account” the principal adverse indicators.

The European Commission has clarified this by introducing the requirement for procedures to mitigate these principal adverse impact (PAI) indicators. Indeed, PAI indicators must be reported, but the mitigation procedures must also be disclosed. “The description related to the adverse impacts shall include both a description of the adverse impacts and the procedures put in place to mitigate those impacts“.


3.1 DPAM’s approach

Firstly, DPAM has disclosed its Principal Adverse Impact Statement at entity level on its website.

Secondly, DPAM has specified which products integrate the PAI indicators. Please refer to the summary table below.

Figure 3

Source: DPAM 2023

Finally, DPAM has explicitly detailed how each mandatory PAI is considered and taken into account. We explain how we go beyond disclosing the metrics at an entity and product level in our PAI Statement as well as our Sustainable & Responsible Policy.


The PAIs are defined as negative, material or potentially material effects on sustainability factors that stem from, exacerbate, or are directly connected to investment decisions or advice provided by DPAM. These are intrinsically linked to our desire to reduce the negative impact of our investments, which is embedded in the entire research and investment process from its inception.

First, the environmental PAIs, particularly those related to greenhouse gas emissions and energy performance, are analysed and monitored at both the issuer and portfolio levels.

Second, the social PAIs are systematically scrutinised through the three-step disciplined research and investment process, i.e.

  • Global standards compliance filter: This filter is centred around human rights, labour rights, and corruption prevention. Moreover, the filter for companies involved in major ESG controversies includes the controversies related to social matters, namely society & community, customer and employee, and the controversies related to governance matters such as business ethics, including corruption and bribery.
  • Exclusion filter for companies involved in controversial activities.
  • Exclusion filter for companies involved in major ESG controversies.


Integration and prioritisation

The integration of PAIs into the investment process primarily focuses on understanding the materiality of the indicators in terms of risk and time horizon.

The prioritisation of PAIs depends on several elements: the availability of data, its quality and coverage, and its materiality in terms of sustainability risks.

    • Public quantitative data from the company and/or specialised companies.
    • Qualitative assessments by sector-specialised analysts, particularly based on their dialogues with the companies they cover.


Once the PAIs have been calculated, beyond their absolute level, the most important thing is to understand their origin and to take necessary actions to guide them in the right direction. Thus, dialogue, engagement, and voting can be significant levers for change.


Environmental PAIs such as carbon emissions, greenhouse gas emissions, waste or water consumption, are some of the topics for engagement, whether in the framework of Climate Action 100+, CDP or FAIR, or in the context of individual engagement stemming from our Responsible Investment Steering Group’s decisions on controversies. The same applies to social PAIs, such as human rights and employee rights via collaborative initiatives (e.g., through the Investors Alliance for Human Rights or the Facial Recognition collaborative initiative) or via individual initiatives. These topics remain in the minority on the agenda of shareholder meetings where we, as shareholders, can vote. However, we do not hesitate to use this lever to also put pressure on companies by voting against certain agenda items, to generally support ESG resolutions or to express our dissatisfaction with the board of directors. Our voting policy outlines the approach taken on ESG resolutions and shareholder resolutions.

After following the different rules for each step of the investment process (i.e. normative screening, controversy exclusion, controversy analysis and possible engagement, voting policy, engagement policy), an escalation and decision process exists that may ultimately lead to disinvestment.

Government Bonds

In the specific case of government bonds investments, the first PAI relevant for government bonds (and countries as issuers) is related to environmental issues and focuses on the greenhouse gas emission intensity of the countries invested in. This indicator is an integral part of the country sustainability model developed by DPAM for its sovereign bond investments. It is therefore included in the country sustainability score and can influence this score positively or negatively depending on its level and evolution relative to other issuing countries.

The second PAI relevant for government bonds (and countries as issuers) is related to social issues and focuses on issues of social violations. Our country sustainability model looks at several indicators on this issue such as respect for civil liberties and political rights, respect for human rights and the level of violence within the country, commitment to major labour conventions, the issue of equal opportunities and distribution of wealth, etc. These different indicators are included in the score for the country. These different indicators are included in the country’s sustainability score and can influence it positively or negatively depending on its level and evolution in relation to other emitting countries.


    • June 30, 2023: The first PAI statement with quantitative metrics must be disclosed at entity level.
    • October 2023: The ESA will issue a consultation report on the technical SFDR rules – with the final report to be submitted to the European Commission. The proposals might include new PAI metrics, adjusted RSG templates, and the transparency level for the DNSH filter.
    • January 1, 2024: The Directive Corporate Sustainability Reporting enters into force for corporations that are within the scope of its former Non-Financial Reporting Directive (NFRD). The Corporate Sustainability Reporting Directive (CSRD) is the new EU legislation that mandates all large companies to publish regular reports on their environmental and social impact activities. This directive allows investors, consumers, policymakers, and other stakeholders to assess large companies’ non-financial performance. The corporations that are currently not within the scope of the NFRD but are within the scope of the CSRD will need to report a year later, on January 1, 2025.
    • Starting from January 1, 2024, investments’ alignment with the final four EU Taxonomy objectives must be reported (i.e., circular economy, pollution, effect on water and biodiversity).


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