Do no significant harm in climate regulation

EU regulators introduced the principle of "do no significant harm" (DNSH) to prevent myopic investment processes that focus on a particular objective, such as climate, from having unintended side effects in other areas, such as good water, waste and biodiversity management and social equity.

“Do no significant harm” in climate regulation

Under the newly amended EU Benchmark Regulation, Article 19b states that companies included in climate transition indices cannot significantly harm other ESG objectives. This is further clarified in the Delegated Regulation under Article 12(2), which states that “Administrators of EU Paris-aligned benchmarks shall exclude from those benchmarks any companies that are found or estimated by them or by external data providers to significantly harm one or more of the environmental objectives,” with direct reference to the Taxonomy regulation.

Bloomberg DNSH data is used to estimate, at both entity and activity level, the specific testing requirements in the Taxonomy's Climate Delegated Acts. Due to the state of disclosure against the detailed DNSH tests, Bloomberg's Paris-Aligned Indices incorporate DNSH estimates at the entity level.

An implementation of the Paris-aligned benchmark without explicitly incorporating the Taxonomy's definition of DNSH would not be in line with the regulation. However, exclusion for non-compliance with DNSH is not possible, given the low level of disclosures observed in the market today. Bloomberg has incorporated DNSH data to ensure the Paris-aligned benchmark performs better than its parent index against all six environmental goals – adaptation, biodiversity, mitigation, pollution, waste and water. This is important to ensure that a strategy to pursue carbon reduction does not come at the expense of other environmental objectives. The Bloomberg Paris-Aligned Indices therefore ensure the DNSH Level 1 Final Score to each environmental objective is at least higher than the parent index.

To learn more about Bloomberg's stance on DNSH, read our blog post here.