The ESAs’ Report on the Sustainable Finance Disclosure Regulation (SFDR) Unveils Good and Bad Examples from Published Principal Adverse Impact (PAI) Disclosures

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

The report assessed PAI disclosures, distinguishing between good and bad disclosures. Good disclosures included comprehensive due diligence and transparency policies, sufficient details, and indications of when more information would be available.

Bad disclosures lacked detail in due diligence statements, only considered PAIs at a group level, lacked clear rationales for non-consideration of PAIs, referred to unclear procedures for PAI impact calculation, confused PAI statements with sustainability risk integration, lacked a website, and provided different information for professional and retail investors.

ESAs noted improved visibility and accessibility of disclosures on websites but identified the need for better explanations of non-consideration of PAIs and disclosures related to alignment with the Paris Agreement as areas for improvement.