ESG chanlleges and opportunities
Focus on the Principle Adverse Impact (PAI) Statements at Entity Level
The PAI statement is an annual report that Financial Market Participants i.e. the Entities shall publish on their website to disclose if and how their investment decisions take into account adverse impacts on sustainability factors.
All Financial Market Participants (FMPs) are concerned, whether they are ManCos, AIFM, investment firms that provide portfolio management services or even insurance firms that offer insurance-based investment products (IBIPs).
Here is a quick overview of what you need to know about the subject.
The PAI statement shall be disclosed by 30 June each year and covers the period from 1 January to 31 December of the previous year. For the first PAI Statement, the period covered shall start from the date on which the PAI of investment decisions on sustainability factors were first considered until 31 December of that year.
The PAI Statement must be published on the website of the FMP and in a separate section titled “Statement on principal adverse impacts of investment decisions on sustainability factors”.
The following FMPs shall mandatorily publish and maintain a PAI statement on their websites:
- FMPs exceeding on their balance sheet dates the criterion of the average number of 500 employees during the financial year or,
- FMPs which are parent undertakings of a large group exceeding on the balance sheet date of the group, on a consolidated basis, the criterion of the average number of 500 employees during the financial year.
Other FMPs may opt to “comply or explain”.
The PAI Statement is to be done following a template. Information shall remain in the order and structure indicated.
The template and guidance on the statement can be found in the Commission Delegated Regulation (EU) 2022/1288 :
- Chapter II - Section I as well as Annex I if the FMP is considering or shall consider the PAI of investment decisions on sustainability factors (comply),
- Chapter II - Section 3 if the FMP is not considering the PAI of investment decisions on sustainability factors (explain).
Nota bene: Commission Delegated Regulation (EU) 2022/1288 has been amended by Commission Delegated Regulation (EU) 2023/363.
Quarterly PAI measurements should be considered in preparing the annual PAI statement. It ensures that measurement and monitoring of the metrics are done on an ongoing basis.
More information about the calculation of PAIs can be found on ESMA website and especially in the following documents:
It is important to note that both direct and indirect investments shall be taken into account to measure the PAI i.e. a look-through mechanism applies (e.g. in case of investments in funds of funds or derivatives).
The PAI Statement is not only a table with metrics that needs to be calculated: it shall also include explanations on these metrics, actions planned or targets related to them and, in future, a historical view of up to five years on them.
No indication is given in the regulation on possible translations of the PAI Statement except for the summary section of the statement (a max. 2-page document) that must be published:
- in one of the official languages of the FMP home member state (and where different, in an additional language customary to the financial world)
- and in the official languages of countries where the FPM is marketing its financial products.
Please also refer to Article 2 of Commission Delegated Regulation (EU) 2022/1288 for more details on the presentation of the information on websites.
It is possible to use the PAI indicators to measure the environmental or social characteristics or the overall sustainable impact of a financial product e.g. by showing improvements of the investments against those indicators over time. Disclosures on that use shall be made in SFDR pre-contractual and periodic disclosures required for products that are Art. 8 or 9 SFDR.
The European Supervisory Authorities clarified three possible uses of PAI indicators at financial product level: please see the point 7 of (JC 2022 23). The use of PAI indicators is for example mandatory to demonstrate that an investment qualifies as a sustainable investment under SFDR i.e. that it Does Not cause Significant Harm (DNSH).
The ESAs consider however that using PAI indicators to fulfil the DNSH assessment of a product does not necessarily require a PAI consideration at entity level.
This information has been prepared for information purposes only and does not constitute tax or legal advice. The information contained in this webpage cannot be relied upon for contractual reasons. EFA believes that the information on this website is accurate as at the date of publication but no warranty of accuracy is given and no liability for any error or omission is accepted by EFA, its affiliates or any director or employee of EFA or its affiliates. 28/02/2023
Comprehensive ESG Services
EFA can help you comply with SFDR regulation and is offering comprehensive ESG services:
- EFA helps you integrate, assess, measure and report on sustainability risks with a direct access to a powerful risk management and reporting platform.
- No data management and short implementation times: ESG data is coming from well-known specialist data vendors and is integrated in the platform ready-to-use. All data management is performed by EFA.
- Sustainability risk exposures and limits on E, S and G criteria, involvements in controversial activities, negative and positive screening… We support your investment processes and help you find investment opportunities while considering your constraints.
- SFDR PAI, European taxonomy reports and a dataset for EET are some of the many reports available on the platform.
- Look-through on funds of funds positions natively embedded in risk analysis and reports.
EFA’s ESG solution is designed to enable asset managers, ManCos and AIFMs to be compliant with SFDR and the EU Taxonomy regulations in a cost-effective way.
Do you have any questions about the SFDR, about reporting requirements?
Please fill in the form below and we’ll be happy to contact you.