ESAs publish fourth annual report on PAI disclosures under SFDR

The Joint Committee of the European Supervisory Authorities (comprising the European Banking Authority, the European Insurance Occupational Pensions Authority and the European Securities and Markets Authority - ESAs) has published its fourth annual report on Principal Adverse Impact disclosures (PAI) under the Sustainable Finance Disclosure Regulation (SFDR). The report refers to PAI disclosures published by 30 June 2024 for the reference period from 1 January to 31 December 2023. The analysis included both mandatory and voluntary disclosures by financial market participants (FMPs). Building on the progress identified in previous reports, the report notes an effort from FMPs to publish more complete information and in full compliance with the SFDR's disclosure requirements, with a general improvement in the quality of information provided. The findings confirm the trends of previous years, such as that the FMPs that are part of larger multinational groups disclose the information on sustainability in a more detailed and appropriate manner, and that smaller entities mix information on ESG / general marketing information with SFDR disclosures, for example a lot of text, but no clear information whether principal adverse impacts are considered or not.

The ESAs also welcome the feedback received from national competent authorities (NCAs) that following the previous reports published, several FMPs have taken onboard the highlighted good practices and improved their own disclosures.The annual report also includes supervisory recommendations addressed separately to both the NCAs and to the European Commission (EC). Among the recommendations to the EC is one to reduce the frequency of the reports to every two or three years, allowing both the ESAs and NCAs to focus on delivering more meaningful analysis of PAI disclosures. An annex to the report includes a table with examples of "good" and "below average" practices identified by the ESAs, based on both NCA observations and the ESAs' own desk-based analysis.

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