Coverage, data sources, what to write as "explanation" or "actions": findings from 28 PAI statements

We have been working closely with our clients for the past couple of years in preparation for this date: June 30th, 2023, the deadline for Financial Market Participants to publish their very first Principal Adverse Impact (PAI) statement, containing sustainability indicators calculated to represent the sustainability impacts generated by the investment activities of these FMPs.

Since June 30th, the team at Datia has been scouting the internet, refreshing websites, and looking through the pages dedicated to sustainability reports, in the search for those precious first documents published. And we found many which inspired us to write this short summary of findings and observations from the first PAI statements. 

For this summary, we focused on the Swedish market, where Datia’s headquarter is based, and specifically on the 48 members of the Swedish Investment Fund Association (Fondbolagens Förening). By July 4th, 2023, we were able to identify 28 PAI statements that include impact indicators and actual data for the PAIs. 

Here are some of the findings from them:

• Coverage

Of the 28 PAI statements analyzed, not all of them disclose what is the data coverage used in the report. Of the PAI statements disclosing it, the coverage can vary from only 0.5% for some indicators all the way to 100%. One indicator that seemed to have especially low coverage was “emissions to water”. Some PAI statements do not disclose all indicators and add an explanation for it: “missing data”. Notice that the very low coverage of some indicators or complete lack of data were not limiting factors keeping these FMPs from publishing their PAI statement. 
The percentage of data coverage is usually displayed in the “explanations” column. 

• Data sources

Some of the PAI statements disclaim how the data was acquired - one or multiple third-party data providers. A few go as far as showing the name of the third-party provider to each of the indicators. We also came across examples of PAI statements that display what percentage of the underlying data was reported and what percentage was estimated, for each of the indicators.  This is not required by SFDR but is considered "best practice" according to different Q&A documents published by European authorities. 

• Usage of “explanation” and “actions” columns

Some of the PAI statements did not add any “explanation” and “actions”, and only published the indicators under the column “impact 2022”. 
Overall, there is great variety in the usage of the column “explanation”. Of the 28 PAI statements analyzed, some use the “explanation” column to add the percentage of data coverage. In the “actions” column, some FMPs transparently stated that they did not take any actions during the year 2022. For indicators such as “Exposure to controversial weapons”, some FMPs use the column “actions” to describe that no investment is made in companies with such exposure.
Overall, the content of the “actions” also varies with some FMPs writing what they would like to see happen to an indicator over time (for example: “we would like emissions to reduce”), and other FMPs taking the opportunity to describe their plans of active ownership to improve the indicators moving forward, mentioning divesting as a “final resort”. 

• Indicators adjusted to intensity (carbon footprint, GHG intensity, etc)

The PAI statement could be a tool to compare entities, specifically by comparing those indicators adjusted to ratios (i.e. measured and disclosed by intensity - revenue of the investee company, adjusted to EUR millions invested, and so on). We found, however, a big discrepancy in data coverage for such indicators or even a complete lack of data. In order to make these comparisons possible in the future, Datia's team advocates for increased transparency about data coverage.

• Uncertainty about what needs to be published

From this analysis, we noticed that there seems to still be uncertainty about what needs to be done. According to SFDR, FMPs with fewer than 500 employees have the option to opt-out from publishing a PAI statement, but they still need to state, on their website, that they are opting out and why. Of the 48 FMPs analyzed, 3 published such statements. If you would like help to craft this message, reach out to our team at hello@datia.app and we would be happy to share examples.

‍Analysis Breakdown

See below how the members of the Swedish Investment Fund Association are distributed according to their PAI statement status as of July 4th, 2023: 

• 28 FMPs published a PAI statement with indicators for 2022
• 6 FMPs published a statement explaining how Principal Adverse Impacts are considered, but no indicators were presented
• 3 FMPs published an announcement about not considering PAIs and an explanation for the decision 
  
• For 8 of the FMPs, Datia's team could not find either a PAI statement or an announcement of not considering PAIs - the later is a valid option for companies with fewer than 500 employees
• 3 of the members of the Swedish Investment Fund Association were actually part of a larger entity and, therefore, do not need to publish a PAI statement. Instead, their portfolio should be added to the calculations of the larger entities’ PAI statements

These numbers will probably continue changing as, past the due date, more FMPs either prepare full PAI statements or announce they are not considering PAIs.

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‍What’s next after the deadline? 

For the next deadline, June 30th, 2024, FMPs need to publish a PAI statement carrying indicators of the second reference period (January 1st, 2023 until December 31st, 2023), and a comparison between the first and the second reference periods. 

This means that you now have almost one year to work on the next PAI statement and we hope these learnings will help you craft the next document with more ease. Keep in mind though, that before the next deadline, many changes might still happen to the PAI statement template. Earlier in the Spring 2022, the EU Authorities, including the European Securities and Markets Authority (ESMA), announced a public consultation on their review of the Regulatory Technical Standards (RTS). This proposal includes, for example, the addition of 4 new mandatory social PAI indicators, and extending the number of additional indicators. 

How Datia can help

Datia’s platform automates calculations at product and entity levels and generates reports within seconds, following the latest sustainable finance frameworks: SFDR’s PAI statement and Sustainable Investment analysis, EU Taxonomy, and European ESG Template (EET).

Customers may use their own datasets or Datia’s metrics which include +36,000 companies, +210,000 public funds, and +210 sovereign nations. Here's a summary of Datia's solutions to simplify your work with sustainability data sourcing.

Principal Adverse Impact indicators at Datia are transparent and traceable, with links to the sources. Here's a summary of Datia's data transparency methodology.

We are happy to conduct a coverage check of your portfolio within a few hours. Reach out to our team to request a coverage check for your products.