The 2024 report from the European Supervisory Authorities (ESAs) highlights substantial progress in the quality of Principal Adverse Impact (PAI) disclosures under the Sustainable Finance Disclosure Regulation (SFDR). This annual […]

The 2024 report from the European Supervisory Authorities (ESAs) highlights substantial progress in the quality of Principal Adverse Impact (PAI) disclosures under the Sustainable Finance Disclosure Regulation (SFDR). This annual report, the third since SFDR’s introduction, reviews good practices in transparency, accessibility, and comprehensiveness of ESG disclosures by financial market participants (FMPs). The ESAs aim to support improved environmental, social, and governance (ESG) reporting practices, guiding firms towards more robust and accessible disclosures, crucial for advancing carbon-neutral strategies. 

The report underscores improved clarity and accessibility in PAI disclosures, especially in product-level reporting. Notable advancements include clearer location of disclosures, making information more accessible for retail investors. However, despite progress, a limited number of financial products include SFDR PAI data, suggesting a need for increased adoption. Additionally, while compliance with SFDR has generally improved, the ESAs emphasize further efforts for full adherence to regulatory standards. 

To support compliance, the ESAs provide examples of best practices. These include FMPs creating direct website links for “Sustainability-related disclosures” and organizing information according to SFDR standards. The ESAs commend FMPs offering comprehensive PAI statements with clear action plans, which enhance transparency and accountability in ESG initiatives. 

The report also includes recommendations for the European Commission. The ESAs propose reducing the frequency of PAI disclosure assessments to every two or three years, allowing for more detailed analysis. They also suggest revising the current 500-employee threshold, proposing that disclosure requirements be based on investment size rather than employee count, for a more proportional approach to measuring sustainability impact. 

This report offers critical insights for firms aiming to align with EU sustainability standards, reinforcing the significance of ESG and carbon-neutral strategies for regulatory compliance and stakeholder engagement. 

Sources:  

https://sustainablefutures.linklaters.com/post/102jnef/eu-esas-2024-report-show-significant-improvements-of-firms-disclosure-of-princi 

https://delano.lu/article/sfdr-compliance-improves-but-f 

https://sustainablefutures.linklaters.com/post/102jfu3/european-commission-publishes-faqs-on-the-csrd 

https://www.ey.com/en_ch/insights/sustainability-financial-services/eu-action-plan-deep-dive-on-disclosure-regulation-sfdr