Do No Significant Harm

Sustainability today is shaped by multiple forces, with investments acting as a powerful catalyst behind the scenes. Within this context, the European Union (EU) seeks to channel financial flows toward economic activities that are sustainable and responsible through the ‘Do No Significant Harm’ (DNSH) legal standard. This blog explains the scope and content of the DNSH legal standard and its role in shaping sustainable practices across global value chains and production networks. It shows how DNSH translates international law principles into a risk-based assessment framework. Finally, it explores DNSH’s growing integration into the operations of Development Finance Institutions (DFI), highlighting its potential to influence global sustainability governance.

The EU Green Taxonomy

The ‘Do No Significant Harm’ (DNSH) legal standard adopted by the European Union (EU) Taxonomy Regulation is a new generation regulatory standard of the broader environmental principle of ‘Do No Harm’, but goes beyond the latter. The ‘do not harm” general principle refers to the classical concept of duty of care, which lacks a clear parameter to assess a behaviour. The EU Taxonomy advances a more objective and enforceable framework by setting three clear parameters to evaluate compliance with the DNSH legal standard. Firstly, economic activities must contribute substantially to one of the six environmental objectives defined by the EU Taxonomy: (1) climate change mitigation,(2) climate change adaptation, (3) sustainable use and protection of water and marine resources, (4) transition to a circular economy (5) pollution prevention and control on air, water, and soil, and (6) protection and restoration of biodiversity and ecosystems. These objectives cover the main environmental hazards of economic activities in general. Secondly, these economic activities must not significantly harm others – the do no harm environmental principle in its strict sense. Thirdly, these economic activities must align with the minimum social safeguards defined by Article 18 of the EU Taxonomy. In essence, these are the international standards for responsible corporate conduct: the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises, the  United Nations Guiding Principles on Business and Human Rights (UNGPs), the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work (the Tripartite Declaration), and the International Bill of Human Rights. Therefore, the DNSH may be seen as an evolved hardening concept of responsible corporate conduct that explicitly integrates environmental and human rights responsibilities of economic actors. It represents a novel but significant, structured, and criteria-based assessment that does not separate human rights risk-based from environmental risk-based assessments. Corporate groups are therefore expected to assess whether their activities and those of their value chains may cause significant harm to communities and or to ecosystems.

The policy relevance of the DNSH legal standard lies in materialising the sustainable finance policies adopted under the European Green Deal. At first sight, it could be seen as being designed exclusively for financial markets, to guide sustainable investment decisions and corporate disclosure. The latter refers to the obligation of certain companies to publish comprehensive, standardised sustainability information as part of their annual reports (see the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). However, its impact extends beyond these reporting and financial aspects. The leverage of the DNSH legal standard may have an unprecedented effect, extending beyond the UNGPs scheme and the classical principle of ‘do no harm’, because the DNSH is a normative and integrative principle adopted by EU law. It defines the scope of the analysis that investors and corporate groups must carry out on their impact on communities and ecosystems. Even amidst the current wave of deregulation in sustainability matters through the Omnibus packages targeting behavioural and compliance requirements in legislation such as the CSRD and the Corporate Sustainability Due Diligence Directive (CSDDD), the DNSH has remained unchanged and is being adopted by several member states,

Financing with Integrity: How Development Finance Institutions integrate the DNSH Standard into their Operations

Development Finance Institutions (DFIs) are also adopting their own Sustainable Finance Taxonomies. Therefore, the DNSH legal standard is a central element of corporate investment decisions, broadening their scope to include the financial aspects of sustainability, as well as the potential impact of corporate and investment decisions on communities and ecosystems. In reporting, this is known as the ‘double materiality’ analysis. It is expected to pursue the environmental objectives and be guided by international standards (i.e. the UNGPs, the OECD Guidelines, the ILO Tripartite Declaration and International Bill of Human Rights).

DFIs channel millions of resources worldwide. This has been particularly the case since 2015, when Sustainable Development Goal (SDG 17) on Partnership for Development spotlighted them as optimal vehicles for achieving this goal’s targets  Furthermore, their importance was recognised by the OECD, which reported that outflows from the World Bank (WB) Group and other DFIs increased between 2012 and 2020 by 72% in the case of the WB Group and by 155% for other DFIs.

This increasing relevance of DFIs for the SDGs is crucial for responsible corporate conduct. When operating worldwide, DFIs are expected to incorporate sustainability policies, implement due diligence systems to assess funded projects and establish accountability mechanisms to address grievances from communities affected by   . In addition, when DFIs apply the DNSH principle to their operations, they become key players in consolidating sustainable and responsible corporate conduct within value chains and global production networks. This is because, firstly, the DNSH would influence how development and investment credits are granted, as well as the criteria used to assess whether operators in these chains implement the environmental objectives and the social safeguards required by the DNSH legal standard. Secondly, integrating the DNSH principle into the granting of credit lines has the potential to address adverse sustainability impacts before any harm occurs. Thirdly, the new wave of investor-focused responsible corporate conduct regulations could overcome important bottlenecks identified in the implementation of due diligence, such as a lack of institutional capacity among some companies.

Evidence on DNSH

Multiple studies have investigated how DFIs are expected to identify and address the impacts of the projects they finance (see here and here). While some studies assess the sustainability of lending policies (see here), there are no studies assessing the impact of incorporating DNSH into the decision-making processes of institutional investors   . Nevertheless, this is an important avenue because

Avenues to Explore

The ‘Do No Significant Harm’ (DNSH) legal standard is crucial for the implementation of the responsible business conduct framework. This is particularly important given the deregulation initiatives targeting sustainability due diligence compliance frameworks. This legal standard is also expected to permeate how states and companies implement the projects funded by institutional investors and DFIs, even when their business partners are outside the jurisdictions of their parent companies. While conventional sustainability due diligence focuses on risk mitigation and compliance, the DNSH legal standard introduces a systematic, multidimensional sustainability standard requiring economic activities to avoid significant harm to any of the six environmental objectives and to integrate social safeguards (see above)  .

As a result, the DNSH is both a compliance tool and a global legal standard that integrates for the first time the main areas of environmental protection (climate, biodiversity, water and waste management) with international human rights standards. The expectation is that it is not only about assessing risks, but also about ensuring that economic activities do not significantly harm communities and ecosystems. It also has long-term potential because institutional investors and DFIs should incorporate the DNSH into the impact assessment of their credits. The DNSH and the taxonomies thus represent a new generation of transnational sustainability legislation, which goes beyond due diligence management standards. The fact that the taxonomies also define what constitutes a sustainable investment means that the bar is set at a level that cannot be lowered simply by advocating the implementation of management systems.

Furthermore, the EU Taxonomy is also influencing how other DFIs located beyond the EU are implementing taxonomies for assessing how sustainability policies are implemented in other jurisdictions. This is another reason to think that the DNSH can play a more influential role than sustainability due diligence frameworks, as it is already being implemented by DFIs that fund investment and development projects worldwide, with the participation of states and corporate groups  It also establishes clear international and integrated standards for what constitutes sustainable and responsible business conduct, particularly in the context of corporate groups operating global value chains or production networks.

Conclusion

As corporate sustainability due diligence legislation faces increasing scrutiny and deregulation, the DNSH is evolving into a concrete legal standard that gains relevance. This standard seeks to safeguard environmental objectives and integrate social benchmarks into investment decision-making. In addition, the introduction of taxonomies similar to the EU Taxonomy by DFIs highlights its potential to influence sustainable practices across global value chains and production networks. This field has not received significant attention to date, but there are many avenues for policy-oriented research. These research opportunities relate to the scope, interpretation and enforceability of DNSH as a robust tool for advancing sustainability in an increasingly complex and fragmented global economy.