Some 22% of over 3,000 management companies have not been compliant with rules on disclosing principal adverse impacts (PAIs) under the EU’s sustainable finance disclosure regulation (SFDR), according to a study by PwC Luxembourg.
This means they neither published a PAI statement nor a declaration on why they would not report PAIs at entity level.
A further 7.5% of companies, while they had committed to disclosing the data, were not compliant with SFDR Level II.
The firm found that 21.6% of the management companies in the scope of the study issued a publicly accessible PAI statement.
Of the issued statements, 21.9% followed the template prescribed by the SFDR’s Regulatory Technical Standards, a proportion that PwC said resulted in significant disparities with limited data comparability.
The study was based on data from over 2,000 management companies across nine European countries, accounting for 62.6% of the total number of UCITS ManCos, AIFMs, and Super ManCos registered with the European Securities and Markets Authority (ESMA).
PwC said it found wide variations in the quality and substance of publicly available PAI statements.
“While there were positive examples, the majority of published statements were incomplete, lacked quantitative and qualitative-rich insights, or in some instances were left entirely blank,” it said.
PwC also found that 39.1% of the firms surveyed declared that they did not consider the PAIs of their investment decisions on sustainability factors, with the most frequently observed reasoning being insufficient availability of satisfactory and pertinent non-financial data, as well as uncertainties regarding the data collection methods required.
The consultancy’s report includes a series of recommendations for firms and regulators. Recommendations for ManCos include being “specific, complete and transparent”, and scaling up data management and technological capabilities.
“Our analysis shows much work remains to be done if PAI statements are to play a pivotal role in informing stakeholders about investments’ adverse impacts on sustainability and progressing sustainable investments,” said Olivier Carré, deputy managing partner, technology & transformation leader at PwC Lux.
“To achieve this, management companies need to ensure they have reliable and technologically-advanced data collection mechanisms to efficiently track progress, alongside a systematic methodology with well-defined benchmarks”.
Recommendations for policymakers and regulators include providing a complete PAI statement template with consistent transparency metrics. PwC also recommended extending the ESMA database to allow identification of which entitles are considering PAIs at the entity level.