Fund managers must use the latest available data from investee companies when preparing annual PAIs, even if earlier estimates change. Annual PAIs must reflect four points in time (March, June, September, December). If investee data is missing, fund managers must use best efforts (research, third-party data, or reasonable assumptions), and explain how any gaps were filled in the PAI template.
On 21 April 2021 the European Commission proposed legislation to extend the non-financial reporting to enhance sustainability reporting while ensuring consistency with SFDR and the Taxonomy Regulation (CSRD). Until that time financial institutions will be obliged to either estimate the value of PAI indicators under Annex I or ask the investee companies to provide data, on a quarterly basis. We may expect that once the extended reporting obligations are in place, there might be significant discrepancies between the numbers estimated by financial institutions and the numbers actually reported by investee companies under new regulations. Have you considered how to address this issue, how the financial institutions should adjust their reporting to new, actual data reported by investee companies? The new reporting will apply to annual statements and KPIs are to be calculated based on at least quarterly data – this constitutes additional risk of discrepancies between data provided by the financial institutions and by the investee companies.
In addition to aiding any financial product level disclosures where sustainability indicators include information disclosed by investee companies under the CSRD, the reporting provided by the CSRD will be used by financial market participants to satisfy the principal adverse impact disclosures (PAI) under Article 4 SFDR, Chapter II and Annex I of the Delegated Regulation and Article 7 SFDR. The PAI disclosures under Chapter II of the Delegated Regulation are annual disclosures to be published on the financial market participant’s website. The annual disclosure should be based on the average of the attributed impacts of all the FMP’s investments at the end of each quarter, as laid out in Article 6(3) of the Delegated Regulation. Such annual disclosures should be based on the average of indicators observed on 31 March, 30 June, 30 September, and 31 December for any reference period. This disclosure should therefore consist in the average of four different data inputs. As set out in Recital 5 of the Delegated Regulation, four is the minimum but additional specific data points during the reference period could be considered. The intention behind the use of at least four data points is to capture the change in the financial market participant’s investments across a given financial year, as some investments made by the financial market participant may not be held by the financial market participant from beginning to end of the period in consideration, and their relative weights may change across time. In practice, where financial market participants are in the preparatory process of its disclosures under Article 4 SFDR, they should calculate all the impacts from the four data points at the same time. This calculation should be based on the latest available information on the impacts of the investee companies. Therefore, the provision of data by undertakings on a quarterly basis is not a pre-requisite to perform at least four quarterly calculations. Where information about the impacts of the investee companies may not be publicly available, financial market participants should use best efforts to complete the values for each indicator. In that respect, financial market participants should obtain information either directly from investee companies, or carry out additional research, cooperate with third party data providers or external experts. Financial market participants may also make reasonable assumptions. Finally, financial market participants should disclose how these efforts were made according to Article 7(2) in the appropriate field in the template provided in Annex I of the Delegated Regulation. For the avoidance of doubt, a theoretical example could be as follows. FMP A held investments in investee companies “B” and “C” during each quarter of the whole reference period 2025. In May of 2026, FMP A prepares its PAI disclosures according to Annex I of the Delegated Regulation to be published before 30 June 2026, so it finds out the latest available information on the principal adverse impacts of investee companies B and C that they have most recently reported on for fiscal year 2025. FMP A then looks back at its quarterly holdings of investee companies B and C for 2025 and calculates the impacts of investee companies B and C at the end of each quarter in 2025 for each indicator based on the latest available information in May 2026 about the investee companies’ adverse impacts.
European Supervisory Authorities (ESAs)
