EU: ESAs 2025 report shows greater effort from firms’ disclosure of principal adverse impacts under SFDR

The European Supervisory Authorities (ESAs) have published their fourth annual report on the extent of voluntary disclosure of principal adverse impacts (PAIs) under Article 18 of the Sustainable Finance Disclosure Regulation (SFDR).  

Background

Under Article 18 of the SFDR, the ESAs must take stock of the extent of voluntary disclosures at entity and product level and publish a report on an annual basis. The 2025 report refers to PAI disclosures published by 30 June 2024 for the reference period from 1 January to 31 December 2023.

Main findings

• The ESAs have observed a steady improvement in the quality of the PAI voluntary disclosures at both entity and product level and the report notes an effort from financial market participants (FMPs) to publish more complete information in full compliance with SFDR disclosure requirements, with a general improvement in the quality of information provided. In line with previous years, the findings confirm that FMPs within larger multinational groups tend to provide more detailed disclosure, while smaller entities mix information on general ESG or marketing information with their SFDR disclosures (i.e. a lot of text, but no clear information whether principal adverse impacts are considered or not).
   
• The annex to the report sets out an overview of the good and below average practices (split out by sector), as well as a few examples of non-compliance that the NCAs found. FMPs may find these findings useful as they assess the quality of their own PAI disclosures. Key examples include:
  
  
  • Location and identification of disclosures:  disclosures clearly accessible (perhaps by way of hyperlink), and identified (e.g. by way of a clear heading), with information collated in a user friendly manner (perhaps in a single or consistent location on a website, as opposed to scattered across various websites/pages) were identified as examples of good practice
     
  • Clarity of the disclosures: examples of good practice included clear well structured statements with relevant information presented in a way easy for investors to understand, the use of colour and visuals, footnotes with any extra information (as opposed to a large bulk of text, or overly technical language), and FMPs maintaining the order of the applicable indicators, their numbering and description, with an explanation of the actions taken or planned and targets set for the next reference period
     
  • Completeness of reporting:  key examples include those that (i) avoided overly generic or unspecific language, (ii) PAI-statements that clearly and completely stated methods of collecting and processing available data and informed about lacking data (with explicit mention of assets which were not included into the indicator calculation and an adequate explanation for the non-inclusion) 
     
  • Quantification of actions taken: the report highlights as examples of good practice, detailed information on (i) actions taken and planned, tailored for every indicator (ii) ongoing PAI monitoring and escalation and governance systems

Recommendations

Additionally, the report includes recommendations for NCA’s to support their supervision of PAI disclosures and for the European Commission to consider ahead of its upcoming review of the SFDR, which is expected around Q4 2025 or Q1 2026.

The recommendations to the Commission include:

• The Commission should consider the persisting value of PAI statements, possibly in shorter form with reduced indicators, in machine-readable format and made available in the European Single Access Point.
   
• Taking into account the findings related to lack of coverage, the Commission could implement the best practice recommended by the ESAs in joint SFDR Q&A IV.5, which is that FMPs could disclose the proportion of investments covered by data and distinguish that from the proportion that is estimated. 
   
• The ESAs reiterate that the Commission could consider other ways of introducing proportionality for FMPs, as the “more than the 500-employees” threshold may not be a meaningful way to measure the extent to which investments may have principal adverse impacts on sustainability factors. An alternative, and more suitable approach to disclose on the adverse impact of FMPs could consist, for example, of establishing a threshold based on the total amount of the FMP’s investments.
   
• The Commission could reduce the frequency of the annual reports published under Article 18 SFDR to every two or three years, as opposed to the current annual publication.

NCAs are encouraged to , among other things, continue engaging with relevant FMPs to support the necessary enhancements and ensure that disclosures improve in both quality and relevance over time.  In doing so, they should clearly communicate supervisory expectations with FMPs to support the effective integration of PAI into FMPs’ decision-making processes.

The 2025 report is available here.

The EBA press release published on 9 September 2025 is available here.