Environmental PAI Indicators — Calculation Methods

The environmental PAI indicators are among the most data-intensive elements of the SFDR framework. They require financial market participants to gather, process, and aggregate emissions data, energy data, and biodiversity information at the level of individual investee companies.

In plain English: for each company in the portfolio, you need to know how much it pollutes, how much energy it uses, and whether it damages protected ecosystems, then attribute the right share of those impacts to your investment.

This lesson explains each environmental indicator in the mandatory Table 1 and covers the optional additional environmental indicators in Table 2, with a focus on calculation methodology.

Core Concepts: Enterprise Value and Portfolio Share

Most environmental PAI indicators are calculated using a common methodological framework:

The ESMA Q&As (Section III.1) confirm that "enterprise value" means specifically the sum of market capitalisation of ordinary shares, market capitalisation of preferred shares, book value of total debt, and non-controlling interests, at fiscal year-end, without deducting cash or cash equivalents. This precise definition is important because using net asset value or a different enterprise value definition would produce materially different results.

Indicator 1, GHG Emissions

What it measures: The total greenhouse gas (GHG) emissions associated with the portfolio's investments in investee companies.

Scope: Covers Scope 1 (direct emissions from owned or controlled sources), Scope 2 (indirect emissions from purchased energy), and Scope 3 (all other indirect emissions in the value chain) where data is available.

Practical challenge: Scope 3 data is often unavailable or unreliable, particularly for smaller companies. The RTS permits use of estimated Scope 3 where reported data is not available, but FMPs must disclose the proportion of estimated data used. For this reason, many PAI statements report Scope 1+2 and Scope 3 separately, with different data quality indicators.

Indicator 2, Carbon Footprint

What it measures: The absolute carbon footprint of the portfolio, normalised by portfolio market value. Like Indicator 1, it covers total GHG emissions (Scope 1 + 2 + 3), but the formula structure differs, it expresses the result per $1 million of portfolio value, providing a single normalised figure.

The distinction between Indicators 1 and 2 is primarily structural: Indicator 1 reports Scope 1, 2, and 3 emissions as separate line items plus a total, while Indicator 2 aggregates them into a single normalised carbon footprint figure per million EUR invested.

Indicator 3, GHG Intensity of Investee Companies

What it measures: The emissions efficiency of investee companies, how many tonnes of CO₂eq are emitted per unit of revenue. This is a revenue-normalised metric that enables comparison across companies of different sizes.

Note that the denominator here is company revenue, not enterprise value. This makes Indicator 3 a measure of operational efficiency, whereas Indicators 1 and 2 measure financial exposure to emissions.

Indicator 4, Fossil Fuel Sector Exposure

What it measures: The percentage of the portfolio invested in companies that derive any revenue from fossil fuel exploration, mining, extraction, production, processing, storage, refining, distribution, trading, or combustion (including coal, oil, and natural gas), as well as activities that produce fossil-fuel-related products or materials.

Definition note: The definition of "fossil fuel sector" in the RTS is broad, it includes not only energy producers but also companies that manufacture equipment primarily used in fossil fuel extraction or processing, and companies that transport fossil fuels. Determining which companies fall within scope requires careful analysis of revenue streams.

Indicator 5, Non-Renewable Energy Consumption and Production

What it measures: The share of energy consumed or produced by investee companies that comes from non-renewable sources (fossil fuels, nuclear).

Indicator 6, Energy Consumption Intensity Per High Climate Impact Sector

What it measures: Energy consumption intensity (energy per unit of revenue) specifically for investments in high climate impact sectors. These sectors are identified in the RTS by NACE code and include: agriculture, forestry, fishing, energy, utilities, transport, manufacturing, construction, and mining.

The restriction to high-climate-impact sectors means that if the portfolio has no investments in those sectors, this indicator is zero or not applicable, which must be disclosed.

Indicator 7, Biodiversity-Sensitive Areas

What it measures: The share of investments in companies operating in or near environmentally protected areas (biodiversity-sensitive areas) and engaging in activities that negatively affect those areas.

Biodiversity-sensitive areas include:

• Natura 2000 sites (EU Protected areas)
• UNESCO World Heritage sites
• Key Biodiversity Areas (KBAs) as designated by the IUCN

This indicator is binary at the company level (the company either operates in/near these areas and causes negative effects, or it does not), aggregated to a portfolio percentage.

Data challenge: This indicator is among the most difficult to measure in practice. Very few companies publicly disclose their impact on specific biodiversity sites. FMPs typically rely on specialist biodiversity data providers or make conservative assumptions that require disclosure in the PAI statement.

Optional Environmental Indicators, Table 2

Annex I Table 2 provides additional voluntary environmental indicators that FMPs can choose to report. These include:

• Emissions to water: Tonnes of emissions to water per million EUR invested
• Hazardous waste ratio: Tonnes of hazardous waste generated per million EUR invested
• Biodiversity footprint: Land use, freshwater use, and other biodiversity metrics
• Deforestation: Share of investments in companies involved in deforestation
• Carbon intensity (real estate): Energy consumption and carbon intensity for real estate assets by type

FMPs that report additional Table 2 indicators must use the specified formulas and present them consistently with mandatory indicators. Reporting additional indicators can strengthen the credibility of the PAI statement and demonstrate a more comprehensive approach to impact assessment.

Data Sources and Estimation

The RTS is explicit that where reliable reported data is unavailable, FMPs should use best estimates. Sources for estimates include:

• Third-party ESG data providers (MSCI, Sustainalytics, Bloomberg ESG, Trucost/S&P Global)
• Sector average data (where company-specific data is unavailable)
• Country average data (for sovereign indicators)
• Physical asset data (for real estate)

All estimates must be flagged as such in the PAI statement, with an explanation of the estimation methodology used. The PAI statement should also describe steps the FMP is taking to improve data quality in future reporting periods.