Guide to Principle Adverse Impact Reporting
What is the SFDR?
The Sustainable Finance Disclosure Regulation (SFDR) was introduced by the European Commission as part of a package of legislative measures arising from the European Commission’s Action Plan on Sustainable Finance. It was adopted on 27 November 2019 and began to apply from 10 March 2021.
As part of the SFDR, asset managers and other financial market participants (FMPs) must make extensive disclosures on how ESG factors are integrated at both product and entity level, including the principal adverse impacts (PAIs) of their products in a prescribed, standardised template.
Who does it apply to?
FMPs such as investment firms providing MiFID portfolio management, AIFMs, UCITS management companies, and insurance companies, as well as Financial Advisers that offer investment advice as defined under the MiFID.
It’s important to add that whilst the regulation is driven by EU legislation, non-EU headquartered firms may still fall into scope due to the distribution aspect of their activities with the EU.
What does it mean for us - and why do we need to act now?
As of 1 July 2022, FMPs and Financial Advisers that consider principal adverse impacts will have to publish quantitative PAI disclosures.
These entity level disclosures will require firms to follow, at a minimum, the template in Annex 1 of the Regulatory Technical Standards (RTS), which states that managers must disclose on a marketing cap weighted basis, 18 required and 2 optional data points for each company in which they hold investments. This includes looking through Index/ETFs.
How can FundApps help?
FundApps are investigating the opportunity to develop a Principle Adverse Impact Reporting Solution, which will automate the calculations and reports required by investment managers to identify the adverse sustainability impacts of their investments and comply with SFDR.
Giving investment managers the confidence and transparency in results to publicly disclose the current and historic impact of their investments, FundApps’ Reporting Solution:
- Aggregates all holdings to the top entity level where the manager has investment discretion
- Looks back at historic holdings data to report on current and historic investments
- Gives clients full access to the data populated in the report
- Allows clients to generate reports complying with the Annex I SFDR specification
To simplify the onboarding onto FundApps’ Reporting service, clients of FundApps’ Shareholding Disclosure service will need to supply just a few additional data points to calculate the PAI metrics.
What to find out more?
Please get in touch with your Client Success Manager or firstname.lastname@example.org.