The European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have noticed “gradual improvements” in the quality and quantity of principal adverse impacts (PAI) disclosures reported under the Sustainable Finance Disclosure Regulation (SFDR).

The Principal Adverse Impact disclosures under the Sustainable Finance Disclosure Regulation 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.

As part of the ESAs research, NCAs were asked to provide the total number of financial market participants (FMPs) in their jurisdiction covered by the entity disclosures, and of those, the number that must disclose PAIs. The ESAs noted their satisfaction in the increased data provided.

“The ESAs welcome that the NCAs followed the preliminary recommendations in the 2022 and 2023 reports, in particular in terms of a more representative and greater sample size, that include exact figures, breakdowns per sector, and percentages of the market surveyed,” the report stated.

Of the FMPs surveyed, approximately 250 pension funds responded who disclose under Article 4(1)(b), approximately 10 pension funds disclose under Article 4(3)-(4) and approximately 180 pension funds disclose under Article 4(1)(a).

The report found that of the FMPs surveyed that voluntarily disclose PAIs, 15 per cent were pension funds. Of those surveyed that choose not to disclose PAIs, 12 per cent were pension funds.

Overall, the findings show 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.

Going forward, the ESAs has proposed to the European Commission to reduce the frequency of the reports to every two or three years. They argue that this would allow them and NCAs to focus more resources on delivering a more meaningful analysis of the PAI disclosures.

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