The report examines the disclosures of principal adverse impacts (PAI) under the Sustainable Finance Disclosure Regulation (SFDR). It assesses the disclosure practices of financial market participants and provides recommendations based on the analysis of PAI statements from entities. This 2025 report builds on previous annual reports and includes qualitative and quantitative assessments of PAI indicators.
This 43-page annual report, published in 2025 by the European Banking Authority (EBA), presents an analysis of principal adverse impact (PAI) disclosures under the EU Sustainable Finance Disclosure Regulation (SFDR). It covers disclosures at the financial entity and financial product levels for the reference year 2023, with particular attention to the practices of financial market participants (FMPs) from various sectors (asset management, banking, insurance, pension funds, etc.). The report is based on a survey of national competent authorities (NCAs), a qualitative analysis of 91 entity-level disclosures, and a quantitative analysis of investment fund data from the European ESG Template (EET) model.
The EBA 2025 report on PAI disclosures under SFDR is the fourth annual edition, continuing the assessment of progress since the regulation’s entry into force. It highlights a general improvement in the quality and completeness of information published by FMPs, notably those belonging to large multinational groups that provide more detailed and compliant disclosures. However, smaller entities tend to mix general ESG information with SFDR disclosures, sometimes rendering information unclear. The qualitative analysis of entity-level disclosures reveals progress in structuring and referencing international standards such as the Paris Agreement, but highlights persistent gaps in quantifying actions taken, data coverage, and clarity of explanations, notably for indicators related to water, waste, and unadjusted pay gap. At the financial product level, the majority of funds promoting environmental or social characteristics disclose PAI indicators, with satisfactory compliance but variable quality depending on the products. National competent authorities report difficulties supervising these disclosures effectively, notably due to the absence of suitable technological tools and the voluntary nature of product-level declarations. The report recommends the European Commission consider simplifying PAI disclosures, notably via a machine-readable format and publication in the European Single Access Point (ESAP), as well as revising the 500-employee threshold for mandatory reporting, suggesting a criterion based on total investment amounts. It is also proposed to reduce the frequency of reports to every two or three years to focus resources on more in-depth analysis. NCAs are invited to continue their supervision and clarify their expectations to improve the quality and relevance of disclosures, emphasizing comprehensive coverage of investments.
This report was prepared pursuant to Article 18 of the SFDR, which requires European authorities to supervise and report annually on the state of principal adverse impact (PAI) disclosures of investment decisions on sustainability factors. The objective is to assess compliance and quality of voluntary and mandatory disclosures at the financial entity and product levels, identify good practices and shortcomings, and provide recommendations to the European Commission and national competent authorities (NCAs). The scope covers EU FMPs, focusing on entities with more than 500 employees for mandatory disclosures, as well as financial products promoting environmental or social characteristics. Limitations include variability of data provided by NCAs, absence of direct mandatory reporting at the product level, and methodological difficulties related to comparability and coverage of PAI indicators.
1. Coverage and methodology: The report relies on a survey of 29 NCAs, a qualitative analysis of 91 entity disclosures, and a quantitative analysis of EET data from Morningstar. Market coverage varies by NCA, with difficulties obtaining complete and homogeneous data, notably to verify the 500-employee criterion. Mandatory disclosures mainly concern large entities, while smaller ones may choose to disclose voluntarily.
2. Entity-level disclosures: PAI statements are generally accessible via dedicated sections on FMP websites, but ease of access varies. Large entities and those integrated within multinational groups provide more complete and structured information, often referencing the Paris Agreement and initiatives like the Net Zero Asset Managers Initiative. However, gaps remain in clarity, quantification of actions, data coverage (notably for indicators related to water emissions, waste, and pay gap), and updating of statements. Some entities use non-compliant methodologies or incorrect units.
3. Financial product-level disclosures: The majority of funds promoting environmental or social characteristics (SFDR articles 8 and 9) disclose PAI indicators, with satisfactory compliance but variable quality. Supervision is made difficult by the absence of an automated data collection system and the voluntary nature of these disclosures. Good practices include use of the SFDR Delegated Regulation model for pre-contractual disclosures and consistency between product-level and entity-level statements.
4. Quality of disclosures: NCAs generally assess a progressive improvement in disclosure quality, with average scores between 3 and 4 out of 5 for criteria such as accessibility, clarity, completeness, quality of statements, quantification of actions, and timeliness. Weak points mainly concern quantification of actions taken and clarity of explanations, notably for smaller entities.
5. Observed practices: Good practices include publication in dedicated sections, use of clear summaries, explicit reference to international standards, detailed description of methodologies, and setting precise targets. Insufficient practices include dispersed information, overly technical or generic statements, insufficient explanations on actions and objectives, and outdated or incomplete statements.
6. Supervision difficulties: NCAs highlight the significant burden related to manual review of statements, lack of suitable technological tools (SupTech), and methodological limits of indicators, complicating assessment of compliance and relevance of disclosures.
Findings:
- General improvement in quality and completeness of PAI statements since SFDR entry into force.
- Large entities and multinational groups provide more detailed and compliant disclosures.
- Majority of funds under SFDR articles 8 and 9 disclose PAI indicators.
- Persistent difficulties in quantifying actions taken and clarity of explanations.
- Uneven data coverage, notably low for certain indicators (water emissions, waste, pay gap).
- Majority compliance with the publication deadline of 30 June 2024, but presence of outdated statements.
Hypotheses:
- Observed improvements partly due to incorporation of good practices recommended in previous reports.
- The 500-employee threshold is not always relevant to measure FMP impact.
Interpretations:
- Complexity and technicality of statements may limit understanding by retail investors.
- Absence of automated tools for NCAs hinders effective supervision.
- Voluntary nature of product-level disclosures limits coverage and comparability.
Uncertainties:
- Variability of data provided by NCAs limits comparability across jurisdictions.
- Actual impact of declared actions on reducing adverse impacts remains difficult to assess.
- Future evolution of practices in absence of major regulatory changes.
The report concludes that PAI disclosures under SFDR are progressing in quality and compliance, but improvements remain necessary, notably in quantifying actions, data coverage, and clarity of information. The main recommendations addressed to the European Commission are:
- Consider publishing PAI statements in a more concise form, in a machine-readable format, accessible via the European Single Access Point (ESAP).
- Implement the recommendation to disclose the proportion of investments covered by actual versus estimated data.
- Review the mandatory 500-employee threshold, favoring a criterion based on total investment amounts.
- Reduce the frequency of annual reports to a biennial or triennial rhythm to focus resources on in-depth analysis.
To national competent authorities (NCAs), it is recommended to:
- Continue engagement with FMPs to improve quality and relevance of disclosures.
- Clarify expectations regarding integration of PAI in FMP decision-making processes.
- Ensure comprehensive coverage of investments in disclosures.
These measures aim to strengthen transparency, comparability, and effectiveness of PAI disclosures, thereby contributing to better consideration of sustainability risks and impacts in the financial sector.
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