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  • Writer's pictureDeborah

Sustainability-related disclosures in the financial services sector (SFDR) became applicable last March 2021, requiring a statement with respect to Principal Adverse Impacts (PAIs) that investment decisions have on environmental and social sustainability factors. A financial market participant (FMP) that does not consider adverse impacts of investment decisions on sustainability factors must clearly explain why it does not do so and whether / when it intends to.


To gather information after the first year, the European Supervisory Authorities (ESAs) conducted a survey of National Competent Authorities (NCAs) to understand the state of voluntary disclosures published by FMPs below the 500-employee threshold and identify best practices.


Overall, information on disclosures is easy to find. However, the survey revealed a low level of disclosure pertaining to the degree of alignment with the Paris agreement objectives, including vague descriptions.


The Report released on July 22 highlights various examples of disclosures and provides examples of best practices, including:

  • High visibility of disclosures

  • Clarity of descriptions concerning PAI and reasoning


The Report includes ESAs recommendations on how NCAs should monitor the compliance of FMPs and financial advisers with the requirements of SFDR, namely:

  • Continuous market observation to identify FMPs that are not compliant with the voluntary disclosures

  • Provision of greater sample size and more details in reporting figures to allow representativity

  • Regular surveys to monitor / determine effective compliance

  • Offsite inspections of non-compliant FMPs

  • Use of IT and / or other SupTech tools to facilitate the assessment of compliance with the mandatory disclosure

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