Preparing for Principal Adverse Impacts Reporting under the SFDR

Preparing for Principal Adverse Impacts Reporting under the SFDR

New Irish Funds Research highlights Significant Data Challenges 

The EU Sustainable Finance Disclosure Regulation (SFDR) has applied on a “Level 1” or high-level principles basis since 10 March 2021. The next significant milestone in the implementation of the SFDR is the application of the detailed “Level 2” measures or Regulatory Technical Standards (RTS). Among other obligations, the RTS set out detailed and prescriptive requirements in relation to reporting on the principal adverse impacts of investment decisions on sustainability factors (PAI) via a standardised template or PAI Statement. This includes a range of mandatory and optional PAI indicators for Managers to report on alongside more qualitative aspects. While the European Commission recently announced a 6-month delay in the application of the RTS, much remains to be done in order to prepare for the reporting of ESG metrics. 

Irish Funds has recently published a paper to assist asset managers in preparing for reporting on principal adverse impacts. The paper includes a survey of ESG Data Vendors and the findings, summarised below, underscore the ESG data challenges associated with PAI reporting. The findings reveal patchy coverage on several ESG data points and a wide range of variance in the reported data with low levels of comparability.

Nine Data Vendors responded to the research request covering a range of Data Vendors in both the traditional and alternatives spaces. The data was reviewed for coverage, variance and comparability. It is important to note that the data analysed refers to vendor data available up to May 2021. 


The key findings of the analysis are:

  • Data is generally available for only eight of the 14 mandatory PAI relating to investee companies and that data can vary considerably between Data Vendors.
  • There is good coverage on the Greenhouse Gas (“GHG”) emissions, carbon footprint, carbon intensity and board diversity. However, across these indicators there was a wide variance in the data provided.
  • For biodiversity, water emissions, hazardous waste and gender pay gap, there was limited information reported. In some cases, only three companies in the sample portfolio were covered.
  • For the indicators applicable to investments in sovereigns and supranationals there was data provided by four Data Vendors and the range of information varied across all Data Vendors.

Data variance

For a number of the indicators there is wide variance amongst the data points provided by the Data Vendors being used to meet the specifications of the PAI indicators. This wide variance could impact on the creditability of the data reported. The Irish Funds analysis covered the data points for Scope 1 and 2 Greenhouse Gas emissions (GHG) and carbon intensity.

Analysis of the variance in the data points identified the following findings:

  • For scope 1 GHG, the range of data provided showed differences of between 10% and 50%.
  • For scope 2 GHG, the range of data provided showed differences greater than 50%.
  • For GHG intensity, the range of data provided showed differences greater than 50%. GHG intensity should be calculated at the portfolio level under SFDR, and metric reported by Data Vendors was different to the SFDR definition.


In comparing the data, we found that some data differed in terms of value and some in terms of units of measurement. One key factor for value differences is the timeliness of the data provided for the sample portfolio. Some Data Vendors provided data for companies for 2019 and some for 2020. Thus, depending on the Data Vendor that a Manager uses there could be a significant difference in the reporting of some of the PAI indicators for funds with similar portfolios. The timeliness of data updates will be a challenge, as in most cases the data will be based on the previous financial year. For a number of indicators there are different metrics used by the Data Vendors. As a result, only a subset of PAI data points were fully comparable.

Key implications and next steps

The results of the survey illustrate that the lack of common sustainability reporting standards for companies hinders the comparability and creditability of the reported data. The proposal for a Corporate Sustainability Reporting Directive (CSRD) published in April 2021 extends the scope and content of sustainability-related reporting obligations of certain EU companies and we expect the availability of data by such companies to improve over time.

However, significant data challenges will remain for Managers investing in non-EU companies or EU companies that do not fall within the scope of the CSRD.

Furthermore, the timeframe for reporting against the PAI indicators for the first time is now unclear in light of the European Commission’s deferral of the application date of the RTS as a whole until 1 July 2022. Early clarification from the European Commission on this critical point would be welcome in order to enable Managers to prepare accordingly.

In light of the significant data challenges that currently exist, Managers seeking to comply with the PAI reporting requirements will need to employ a best-efforts approach. The same challenges will also apply in relation to the implementation of reporting under the EU Taxonomy Regulation.

Guidance from regulators on how to address these data gaps and on the use of “best efforts” until such time as sustainability reporting standards are in place under the CSRD would be welcomed.

We would encourage Managers to start engaging with their Data Vendors to determine if they will be able to provide sufficient data to report on the PAI. This will not be an easy exercise and we suggest that to the extent not already underway, project plans addressing PAI reporting are put in place as soon as possible.

For more information see our dedicated publication which also includes a helpful Q&A on implementing PAI reporting. For a broader overview of SFDR see our publication on ‘SFDR – preparing for compliance’. 

Cliodhna Murphy - MUFG, Patrick Rooney - Irish Funds, Chris Johnson - HSBC, Aine McCarthy - Dillon Eustace, Jack Lee - Deloitte, Darren Woods - KBC, Deirdre Timmons - PwC, Andrew Farmer – the AMX, Hanzel Fadrilan - Baillie Gifford

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