EU Taxonomy DNSH Assessment

Screen projects against the EU Taxonomy's 'Do No Significant Harm' criteria across six environmental objectives.

Overview

The EU Taxonomy Regulation (Article 17) requires that economic activities claiming environmental sustainability must not cause "significant harm" to any of six environmental objectives. Verdex integrates DNSH screening as part of the greenwashing detection system.

đź’ˇEU Taxonomy Article 17
An economic activity is considered to cause significant harm if it leads to significant negative impacts on any of the six environmental objectives, regardless of its contribution to other objectives.

Why DNSH Matters for African Projects

European DFIs like FMO, DEG, Proparco, and BII are increasingly applying EU Taxonomy criteria to their investments. DNSH compliance is becoming a prerequisite for accessing European climate finance.

“Projects that fail DNSH screening may be excluded from EU Taxonomy-aligned portfolios, even if they contribute to climate mitigation.”

RegulationEffective DateImpact
EU Taxonomy RegulationJuly 2020Defines DNSH criteria for sustainable activities
SFDR Level 2January 2023Requires DNSH disclosure for Article 8/9 funds
EU Green Bond Standard2024Mandates DNSH compliance for green bonds
Corporate Sustainability Due Diligence Directive2026Extends DNSH to supply chains

The 6 Environmental Objectives

Verdex evaluates projects against each of the six EU Taxonomy environmental objectives:

Climate Change Mitigation

Project must not lead to significant GHG emissions

Criteria: No increase in carbon lock-in, no fossil fuel expansion

Climate Change Adaptation

Project must be resilient to physical climate risks

Criteria: Climate risk assessment conducted, adaptation measures identified

Water & Marine Resources

No significant harm to water bodies or marine ecosystems

Criteria: Water efficiency measures, pollution prevention

Circular Economy

Waste management and material efficiency

Criteria: Waste hierarchy compliance, material recovery plans

Pollution Prevention

No significant air, water, or soil pollution

Criteria: Emissions controls, pollution prevention measures

Biodiversity & Ecosystems

Protection of ecosystems and habitats

Criteria: ESIA conducted, no critical habitat destruction

DNSH Scoring Framework

Each objective is scored on a 0-4 scale, with a maximum total of 24 points:

4
NO HARM
Project demonstrates positive or neutral impact
2
POTENTIAL HARM
Risks identified but can be mitigated
0
SIGNIFICANT HARM
Fundamental incompatibility with objective
DNSH ScoreNormalizedStatusImplication
20-2483-100%COMPLIANTMeets EU Taxonomy DNSH requirements
12-1950-79%PARTIALSome objectives need attention
0-110-49%NON-COMPLIANTSignificant harm identified

Integration with Greenwashing Detection

DNSH assessment is not a separate module—it's integrated into the greenwashing detection system as a "harm detection" layer.

Combined Greenwashing Score Formula

50%
AI-powered greenwashing pattern detection
30%
Rule-based red flag detection (15 patterns)
20%
DNSH environmental harm assessment
⚠️Fundamental Incompatibility
Some project types are fundamentally incompatible with EU Taxonomy regardless of mitigation measures. These include:
  • • New fossil fuel extraction or infrastructure
  • • Coal-related activities
  • • Projects in critical habitats without ESIA
These receive a score of 0 for the relevant objective and cannot be remediated.

Technical Implementation

The DNSH evaluator uses AI-powered assessment with sector-weighted scoring:

typescript
// DNSH Assessment Types
interface DNSHCriterionResult {
  objective: DNSHObjective;
  objectiveName: string;
  status: 'no_harm' | 'potential_harm' | 'significant_harm';
  score: number;        // 0-4
  evidence: string;
  concern?: string;
  recommendation?: string;
  isFundamentallyIncompatible?: boolean;
}

interface DNSHAssessment {
  overallStatus: 'compliant' | 'partial' | 'non_compliant';
  totalScore: number;           // 0-24
  normalizedScore: number;      // 0-100
  criteria: DNSHCriterionResult[];
  keyRisks: string[];
  recommendations: string[];    // Only for fixable issues
}

// Sector-weighted evaluation
const SECTOR_WEIGHTS: Record<Sector, Partial<Record<DNSHObjective, number>>> = {
  mining: {
    water_resources: 1.5,       // Mining has higher water impact
    biodiversity: 1.5,          // Mining affects ecosystems
  },
  agriculture: {
    biodiversity: 1.5,          // Land use impacts
    water_resources: 1.3,       // Irrigation concerns
  },
  // ... other sectors
};
đź’ŽAfrica-Contextualized Assessment
DNSH evaluation is contextualized for African conditions:
  • • Water stress: Higher weight in Sahel and North Africa
  • • Biodiversity: Critical habitat mapping (Congo Basin, Madagascar)
  • • Climate adaptation: Physical risk data from Open-Meteo

DNSH: Your Competitive Advantage

Verdex is the only hackathon project that integrates EU Taxonomy DNSH screening. This positions African projects for:

  • European DFI compliance (FMO, DEG, Proparco, BII)
  • EU Green Bond Standard eligibility
  • SFDR Article 8/9 fund investment criteria