On 30 October 2024, the European Supervisory Authorities (ESAs) issued a joint report that assesses both entity and product-level Principal Adverse Impact (PAI) disclosures under the Sustainable Finance Disclosure Regulation (SFDR).

The report follows a survey from Member State competent authorities (NCAs) on the current state of entity-level and product level voluntary PAI disclosures under the SFDR. As with previous years, the survey covered the assessment of the disclosures by financial market participants choosing to explain why they did not consider adverse impacts of investment decisions on sustainability factors, as well as disclosures of PAI consideration for financial products.

Findings

The ESAs have found that there is overall positive progress on several elements compared to previous years, in particular on the location of the disclosures, which are becoming more and more accessible to retail investors, and on the level and quality of the information disclosed. Significant improvements were identified in product PAI disclosures, although the share of products disclosing SFDR PAI information remains quite low.

The ESAs have also identified several good and bad practices that have been included in section 3 of the report.

The ESAs note that the survey encouraged NCAs to engage with financial market participants who were not compliant, or only partially compliant, with the rules. The outcome of the exercise helped NCAs set out their risk-based approach on the supervision of SFDR-related disclosures.

Section 3 of the report includes a list of good and bad practices identified by NCAs and an overview of lessons learned from the third year of implementation of the voluntary disclosure.

Next steps

The European Commission may consider the ESAs’ findings and take them into account in the context of their comprehensive assessment on the functioning of the SFDR.

The ESAs reiterate the need to reduce the frequency of their assessment of the PAI disclosures under the SFDR to every two or three years. The ESAs believe these reports are valuable, but a less frequent reporting timeline would allow the ESAs and NCAs to focus more resources on delivering a more meaningful analysis of the PAI disclosures and to draw lessons from previous exercises.