Find out how DNSH and ESG can synergize to elevate corporate sustainability and compliance in today's dynamic business environment.
While "Do No Significant Harm" (DNSH) principle is intrinsically linked to the environmental domain of Environmental, Social, and Governance (ESG) strategies, its principles extend beyond the mitigation and adaptation actions required by ESG Frameworks.
Let’s investigate the DNSH principle and how it is integrated into a company’s ESG strategy.
Understanding DNSH within the ESG Context
Originating from the European Union’s Taxonomy, the DNSH principle prescribes that business activities substantially contributing to one environmental objective should not harm the other defined objectives in order to ensure a balanced and comprehensive consideration of all sustainability dimensions.
6 environmental objectives
The EU Taxonomy delineates six environmental objectives that collectively form a framework for integrating environmental sustainability into corporate strategies in order to guide sustainable business practices and investments:
- Climate Change Mitigation, focusing on reducing emissions and transitioning to a low-carbon economy;
- Climate Change Adaptation, encouraging resilience against climate impacts;
- Sustainable Use and Protection of Water and Marine Resources, emphasizing the conservation of aquatic environments;
- Transition to a Circular Economy, promoting waste reduction and resource efficiency;
- Pollution Prevention and Control, aiming to minimize environmental pollutants;
- Protection and Restoration of Biodiversity and Ecosystems, advocating for the safeguarding and recovery of natural habitats and species.
When it comes to DNSH, the application of the principle is intricately linked to the objectives of climate change mitigation and adaptation:
- For climate mitigation, activities must demonstrate that they not only contribute to reducing emissions or enhancing removals but also do not significantly harm the other five environmental For instance, a renewable energy project must show that it does not adversely affect biodiversity or lead to significant water pollution.
- For climate adaptation, the DNSH principle ensures that actions taken to increase resilience to climate change do not compromise the other objectives. For example, an infrastructure adaptation project should not lead to excessive water consumption or disrupt local ecosystems.
Now that we have contextualized the DNSH principle and described its mechanics, let’s delve into the integration process of DNSH in ESG.
Strategic Integration of DNSH in ESG
Incorporating DNSH into a company's ESG framework demands a structured approach.
Beginning by developing explicit DNSH policies that are closely aligned with the organization's ESG objectives, companies must delineate what constitutes significant harm, spotlight potential risk areas, and articulate strategies to avert such risks.
In this phase, engaging a broad spectrum of stakeholders—including employees, investors, local communities, and suppliers—is crucial for gaining diverse insights on ESG priorities and potential harm, fostering a shared commitment to the DNSH principle.
Strategically, a company must conduct a throughout Risk assessment supported by a materiality analysis in order to identify and prioritize risks associated with significant harm, ensuring that the company's strategies are responsive to stakeholder concerns and business relevance.
A help for this endeavour comes from the European Union which has developed a platform to guide the process of understanding the alignment of an economic activity to SCC, DNSH and MSS criteria: the EU Taxonomy navigator.
Once a company has identified its risks and defined the key performance indicators (KPIs) and compliance documentation activity-specific and pertinent to DNSH, the subsequent step involves the integration of these elements into the ESG monitoring and reporting framework.
Such integration ensures that the company's adherence to sustainability and ESG criteria is not only documented but also actively monitored and reported to be aligned with regulation requirements.
Conclusion
The journey of integrating DNSH principles is not a static one; it demands continual enhancement. Companies are encouraged to stay nimble, embracing new insights and adapting their strategies to reflect the latest in sustainability best practices and stakeholder expectations.
This dynamic process is not merely about risk mitigation—it's also about positioning the company to capitalize on new opportunities that arise within the ever-evolving landscape of sustainability.
