CONSULTATION | Disclosing PAI indicators must be mandatory under ESRS
One of the last steps before finalising the first set of the European Sustainability Reporting Standards (ESRSs) is the European Commission consultation, to which we responded on July 7th, 2023. In our response, we emphasize the importance that the Principal Adverse Impact (PAI) indicators prescribed under the Sustainable Finance Disclosure Regulation (SFDR) should be mandatory in the ESRS in order for asset managers to fulfill their SFDR reporting obligations.
Include mandatory reporting of PAI indicators
We are concerned with the recent changes removing the mandatory disclosure of PAI indicators. We emphasize the importance that all PAI indicators prescribed under SFDR should be mandatory in the ESRS in order for financial market participants (FMPs), such as asset managers, to fulfill their SFDR reporting obligations and – more importantly - contribute to realizing the European Green Deal.
Should PAI indicators remain subject to materiality assessment under ESRS, the treatment of PAI indicators in SFDR should be harmonized with ESRS
The main driver behind the required alignment is availability of data in order to allow meaningful reporting by FMPs for the various stakeholders. If PAI indicators are not mandatory under ESRS, FMPs should as a minimum be allowed to take into account the materiality of PAIs as disclosed by an investee company as part of the PAI statement and Do No Significantly Harm (DNSH) test for sustainable investments.
Furthermore, companies should be required to disclose why a PAI indicator is considered immaterial and periodically reassess the materiality. This requirement will provide transparency to these stakeholders and ensure consistency in reporting.
Clarity needed regarding ESRS exclusion of assets under portfolio management
The Corporate Sustainability Reporting Directive (CSRD) states that it does not apply to financial products mentioned in the SFDR, i.e. Alternative Investment Funds (AIFs) and Undertakings for Collective Investment in Transferable Securities (UCITS). We believe it should be explicitly stated that portfolio management assets are also excluded from reporting under CSRD/ESRS. It would be inconsistent to include assets under portfolio management, since they are also covered as a financial product by SFDR reporting (like AIFs and UCITS). Should however assets covered by individual portfolio management services remain included under ESRS, a reference to their SFDR disclosures should be considered sufficient.
More information
Would you like to respond, or should you have any questions? We would be pleased to hear from you. Please feel welcome to e-mail Randy Pattiselanno, DUFAS manager strategy & regulatory affairs.
