Just 21.6% of management companies (ManCos) issued a publicly accessible Principal Adverse Impact (PAI) statement, despite mandatory requirements to do so before June 2023 under EU sustainable disclosure regulations, research across nine European countries found.
Consultancy PwC Luxembourg revealed that of those who issued a PAI statement, only 21.9% followed the template suggested by the Sustainable Finance Disclosure Regulations Level II regulatory technical standards.
Just over 20% of firms surveyed were not compliant with the regulations, issuing neither a declaration on whether they consider PAIs, nor any PAI statement – and almost 40% declared they do not consider the PAIs in their investment process.
There was also a wide variation found in the quality and data included in publicly available PAI statements, with a “considerable number of declarations incomplete or left entirely blank”, said the firm.
PwC Luxembourg analysed 3,212 management companies and found that alternative investment fund managers faced “more difficulties” in disclosing quantitative and qualitative rich statements, with 38.4% of them issuing a ‘Declaration to not Report.
None of the available PAI statements achieved top marks in PwC Luxembourg’s proprietary PAI Transparency Score, due to a variety of reasons including lack of accessibility, inconsistencies in quality and data. Just over a quarter or PAIs were incomplete or in instances left entirely blank, according to a PwC Luxembourg report.
The report – ‘Principal Adverse Impact Statements in the AWM Industry: Mind the Gap’ – covered 62.6% of the total number of Ucits ManCos, AIFMs, and Super ManCos registered with ESMA.
Results of selected PAIs provided limited insights, said the firm. However, for environment-related PAIs, the self-reported data shows that Super ManCos have the highest carbon footprint (450.4 t/EURmn), while AIFMs and Ucits ManCos followed ( 399.2 t/EURmn and 395.7 t/EURmn, respectively).
Michael Horvath, partner and regulatory advisor at PwC Luxembourg, said: “PAI statements are the first step for many firms into sustainability reporting and may provide relevant actionable insights for stakeholders into what impacts firms’ investment decisions have on sustainability factors.”
The study’s findings on PAI 13 (board gender diversity) disclosures showed an average between 29.8% and 32.6% of women on boards across investments, in line with recent studies on board gender diversity in Europe.
PwC Luxembourg advised that ManCos adopt systematic usage of the template provided by the European Supervisory Authorities. However, on the other hand, the firm said improvements in the structure, completeness, ease of use and prescribed electronic format of the current reporting template would provide a “substantial input in easing the challenges for firms and comparability of the statements prepared”.
Difficulties with the current reporting template are why PwC Luxembourg has developed its proprietary scoring model, the PwC PAI Transparency Score Card, the firm said.
The firm also said the required sustainability information is in many instances “not easily accessible or available at all” from the invested companies.
Olivier Carré, deputy managing partner, technology & transformation leader at PwC Luxembourg, added: “Sustainability regulations are only going to continue to expand in scope and complexity in the coming years. Our analysis shows much work remains to be done if PAI statements are to play a pivotal role in informing stakeholders about investments’ adverse impacts on sustainability and progressing sustainable investments.”
