On 28 September 2023, the European Supervisory Authorities (ESAs) published their second joint report on the extent of voluntary disclosure of principal adverse impacts (PAI) under the Sustainable Finance Disclosure Regulation (SFDR).

Like the approach taken for the first report in 2022, the ESAs launched a survey of Member State competent authorities to assess the current state of entity-level and product level voluntary PAI disclosures under the SFDR and have developed a preliminary, indicative, and non-exhaustive overview of good practices and areas that need improvement.

The report highlights the following:

  • The results show an overall improvement compared to the previous year, although there is still significant variation in the extent of compliance with the requirements and in the quality of the disclosures both across financial market participants and jurisdictions.
  • Disclosures appear easier to find on websites compared to the previous year.
  • When financial market participants do not consider PAIs, they should better explain the reasons for not doing so.
  • Even though they are encouraged to do so under the SFDR, financial market participants are generally not disclosing to what extent their investments align with the Paris Agreement.
  • Voluntary disclosures of PAI consideration by financial products will be further analysed in future reports.

The 2023 report also includes a set of recommendations for the European Commission to consider ahead of the next comprehensive assessment of the SFDR.

Future iterations of the report will include an assessment of the PAI disclosure template and on the disclosure of engagement policies, which started being used on 30 June 2023. However, the main purpose of future iterations will remain an assessment of how widespread those disclosures have become and point at best practices.

For further updates on regulatory developments in the ESG space please visit our Financial Services Regulatory Developments in ESG hub.