In brief

While the quality of principal adverse impact (PAI) disclosures under the Sustainable Finance Disclosure Regulation (SFDR) has improved year on year, the European Supervisory Authorities (ESAs) recommend several changes to the current format.

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Contents

1. In more detail
2. Background
3. Main findings
   1. Firms that choose not to disclose PAIs
   2. Firms that choose to disclose PAIs
4. Next steps

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In more detail

There has been a steady improvement in the quality of PAI disclosures under the SFDR, although financial market participants that are part of larger groups continue to provide more detail.

Those were the main findings published on 9 September 2025 by the Joint Committee of the ESAs, comprising the European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority.

Background

This is the fourth annual report the ESAs have published under Article 18 of the SFDR, looking at the extent of voluntary disclosures at both an entity and product level. It covers PAI disclosures published by 30 June 2024 for the reference period from 1 January to 31 December 2023.

In order to carry out this report, the ESAs used three main sources of information:

1. Its analysis of responses to its survey from 29 National Competent Authorities (NCAs);
2. Its qualitative assessment of 91 entity-level PAI publicly available statements from fund managers, insurance undertakings and pension product manufacturers; and
3. A quantitative assessment of some investment funds’ product-level PAI statements, based on European ESG Template disclosure data from Morningstar.

The most detailed section of the report covers the survey of the NCAs, in which they were asked to rate on a scale of 1 to 5 (with 1 being the lowest and 5 being the highest) financial market participants’ compliance with the following:

1. Location of the disclosures;
2. The clarity of the disclosures;
3. The completeness of the reporting;
4. The quality of the statements of the PAI disclosures;
5. The quantification of the actions taken; and
6. The share of the FMPs meeting the 30 June 2024 deadline.

Main findings

The NCAs provided the following responses in relation to the survey:

Some overall findings in the report are as follows:

Firms that choose not to disclose PAIs

Where firms disclose that they do not consider PAIs, they are required to explicitly state this fact; however, the ESAs consider that the quality of these “statements of non-consideration” remains subpar. The ESAs have noted that they would prefer to see a more forward-looking approach, preferably with an indication of when consideration of PAI indicators will be introduced. At present, explanations provided are “generic, with standard wording, used repeatedly year after year”, with firms commonly citing limited resources and data availability.

Message to disclosing firms: despite the ESAs’ messaging, it is not clear that market approach to statements of non-consideration will change significantly unless formal regulatory guidance is published on this point. Firms should remain vigilant for more formal guidance or rulemaking on this point, however.

Firms that choose to disclose PAIs

Whilst disclosures have improved significantly this year in relation to clarity, quality and completeness (particularly on the investment management side), the ESAs felt that PAI reports were lacking in terms of quantification of actions taken. In a number of instances, disclosures lacked measurable or clearly defined actions, making it difficult for regulators to understand the level of effort made by disclosing firms.

Message to disclosing firms: focus on clear, quantifiable actions either taken or to be taken with a view to reducing PAI impact.

Firms that are part of larger financial services groups tend to disclose information on sustainability in a more “detailed and appropriate manner”.

Message to disclosing firms: smaller firms may benefit from referring to publicly available precedent disclosures put out by larger financial services groups (noting of course that smaller or solo firms may not have the same level of resource to devote to such disclosures).

Next steps

The ESAs had a number of recommendations to the European Commission. In particular, the Commission should:

• Consider amending PAI statements to ensure that they are: (i) in shorter form with reduced indicators; (ii) machine-readable; and (iii) made available through the European Single Access Point;
• Ensure greater clarity around the proportion of investments covered by collected data and the proportion that is simply estimated;
• Consider other ways of introducing proportionality for financial market participants, as the current requirement of making PAI entity-level disclosures mandatory solely for financial market participants with more than 500 employees is somewhat arbitrary; and
• Consider reducing the frequency of PAI reports to every two or three years to allow the ESAs and NCAs to direct more resources to a more meaningful analysis of the PAI disclosures.

The ESAs also recommended that NCAs should continue engaging with financial market participants in order to help make disclosures improve in both quality and relevance over time, and they should clearly communicate their supervisory expectations to financial market participants so that they can make sure to integrate PAI into their decision-making process.

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Thomas Blott, Trainee Solicitor, has contributed to this legal update.