There has been a steady improvement in the quality of voluntary principal adverse impact (PAI) disclosures at both entity and product level, the three European Supervisory Authorities (ESAs) have said.

The comments were made as part of the ESAs (European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), report looking at the extent of voluntary disclosures of PAIs under the Sustainable Finance Disclosure Regulation. 

Similar to previous years, the ESAs surveyed National Competent Authorities and conducted staff-level analysis of publicly available PAI statements from the asset management, insurance and occupational pension sectors and of a sample of financial products’ PAI disclosures. 

However, this year's report revealed that financial market participants (FMPs) are making more of an effort to publish more complete information in compliance with SFDR disclosure requirements, with a general improvement in the quality of information provided.

In line with previous years, the findings also confirm that financial market participants within larger multinational groups tend to provide more detailed disclosure, while smaller entities often combine general ESG or marketing information with their SFDR disclosures.

According to the review, around 258 pension funds surveyed were not disclosing PAIs, while 140 were voluntary disclosing them, and just one was required to mandatorily disclose PAIs. 

This means that pension funds made up just 10.2 per cent of the FMPs that have voluntarily disclosed PAIs of investment decisions on sustainability factors, and 19.9 per cent of FMPs choosing not disclose PAIs. 

Pension funds appeared on the ESAs lists highlighting best practice and areas for improvement, however.

In particular, the ESAs found that pension funds were including disclosures on their website homepages and under sustainability-related disclosure sections, with the PAIs of investment decisions "clearly visible". 

However, it found that some pension funds and fund managers were failing to present this information in a sufficiently clear and detailed manner, making it difficult to fully understand the activities undertaken for specific indicators or groups of indicators.

Additionally, it was noted that relevant links to supporting documents or procedures—when referenced—are frequently missing, which further limits transparency and traceability.

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