European Supervisory Authorities Publish Joint Report on Principal Adverse Impacts Disclosures under the EU Sustainable Finance Disclosure Regulation

The European Supervisory Authorities have published their third annual report on disclosures of principal adverse impacts under the EU Sustainable Finance Disclosure Regulation. The report assesses both entity and product-level PAI disclosures under the SFDR. These disclosures aim to show the negative impact of financial institutions' investments on the environment and people and the actions taken by asset managers, insurers, investment firms, banks and pension funds to mitigate them.

Overall, the report shows that financial institutions have improved the accessibility of their PAI disclosures. There has also been positive progress regarding the quality of the information disclosed by financial products, and, in general, in the quality of the PAI statements although the share of products disclosing SFDR PAI information remains quite low. A few national regulators also reported slight improvements in the compliance with the SFDR disclosures in their national markets. The ESAs state that while the level of compliance with the SFDR provisions, both at Level 1 and implementing measures is not yet fully satisfactory, it is important to recognize that both national regulators and financial market participants have made significant improvements, but additional efforts to achieve full compliance are still needed.

The ESAs conclude the report by making a number of recommendations to the European Commission and to national regulators. They also reiterate the need for national regulators 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 national regulators to focus more resources on delivering a more meaningful analysis of the PAI disclosures and to draw lessons from previous exercises.

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