European Regulators Report Major Gains in ESG Reporting Under SFDR

European Regulators Report Major Gains in ESG Reporting Under SFDR

BY  
AnhNguyen  
- November 7, 2024

European regulators report a “significant” improvement in ESG reporting under the Sustainable Finance Disclosure Regulation (SFDR), particularly in principal adverse impact (PAI) disclosures, according to an annual review by the European Supervisory Authorities (ESAs). This progress is vital as the SFDR mandates investors to disclose metrics on the negative impact of their investments, covering environmental, social, and governance (ESG) concerns, which align with carbon-neutral strategies. 

The report highlights that while there’s marked improvement in areas like greenhouse gas emissions, complex metrics, such as emissions to water, still challenge fund houses. The ESAs noted an increase in reporting standards by national supervisors, though they found compliance levels still short of expectations. Responses from 29 national competent authorities (NCAs) reflect the highest engagement rate in three years of SFDR reporting. 

Regulators observed that improvements in stewardship and alignment with the Paris Agreement were partly driven by national supervisory initiatives. They expect further progress as supervised entities provide additional detail and clarification on ESG efforts. A separate ESA survey involving 65 asset management firms across the EU found that while engagement policies are disclosed, they often lack tangible targets and specific linkages to company-wide engagement strategies. 

The ESAs’ report underscores the critical role of transparent PAI reporting in achieving ESG goals and supporting a carbon-neutral economy. For firms aiming to meet SFDR standards, enhancing the quality of ESG data and ensuring alignment with regulatory expectations are essential steps. 

Sources:  

https://www.responsible-investor.com/european-regulators-find-significant-improvement-in-sfdr-pai-reporting/ 

https://www.esma.europa.eu/sites/default/files/2024-10/JC_2024_68_Final_Joint_ESAs_2024_Final_Report_on_PAI_disclosures__Article_18_SFDR_.pdf 

https://www.responsible-investor.com/what-will-improve-the-data-coverage-of-sfdrs-trickiest-pai-indicator/ 

https://www.eba.europa.eu/publications-and-media/press-releases/esas-publish-2024-joint-report-principal-adverse-impacts-disclosures-under-sustainable-finance

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