Key takeaways
- The majority of the PAI statements disclosed their data coverage
- Over time, as data coverage increases, the indicators reported might increase. To present this context, it is important to have disclosed data coverage since the first PAI statement
- Big diversity in the content displayed on the “explanation” and “actions taken” columns and in the overall qualitative information
- The most common additional PAIs chosen were “Investments in companies without carbon emission reduction initiatives” and “Lack of anti-corruption and anti-bribery policies”
Datia's team delved into 30 Principal Adverse Impact (PAI) statements published by FMPs based in 13 countries including Sweden, Denmark, Finland, Germany, Netherlands, Switzerland, Luxembourg, France, Italy, Spain, Portugal, the UK, and the USA.
The outcome of this analysis is now distilled into this blog post, aimed at empowering asset managers and owners to prepare for their upcoming statements (due in June 2024) with greater confidence and precision.
We grouped the lessons into 5 categories:
- Data coverage
- Indicators adjusted to intensity
- “Explanations” and “Actions taken”
- Qualitative information
- Additional PAIs
1) Data coverage
The disclosure of coverage exceeded our initial expectations. Among the 30 PAI statements scrutinized, 73% (22 statements) reported their data coverage. However, the analysis brought to light substantial variations in coverage across countries, indicators, and among FMPs.
"Carbon footprint" was one of the PAI with the highest coverage across the 30 PAI statements, with some reporting 90% coverage. The average coverage for this indicator was 78%.
On the other hand, "hazardous waste" was among those with the lowest coverage - as low as 10%. The average coverage for this indicator was 30%.
Coverage disclosure predominantly found its place in the "explanation" column.
It's important to point out that while the Sustainable Finance Disclosure Regulation (SFDR) and its delegated acts do not impose specific disclosure or minimum requirements on data coverage, interpretations may differ among national supervisory bodies and industry organizations.
2) Indicators adjusted to intensity
Datia's analysis focused on the carbon footprint (PAI 2), measured in tons of CO2e per million Euros invested. The reported values spanned from 41 tons to 1,088 tons. The average across the 30 PAI statements stood at 429 tons - a remarkable range within this metric only.
The PAI statements alone could not explain the reasons behind this disparity. The variations could arise from the fact that some of these FMPs have a great focus on reducing emissions while others do not consider this PAI in their investment strategy. The difference could also arise simply from incomplete reporting by the investee companies.
Furthermore, the values for carbon footprint are actually underreported due to incomplete coverage. Datia's team extrapolated values to a hypothetical 100% coverage scenario, indicating that the average carbon footprint could surge to around 540 tons. This exercise reiterated the importance of disclosing data coverage, as, in future PAI statements, seemingly elevated carbon footprints might be due to coverage expansions rather than actual changes in the impact made by investee companies.
3) “Explanations” and “Actions taken”
Navigating the landscape of qualitative information poses unique challenges for investors. Datia's analysis spotlighted the diversity in the “explanation” and “actions taken” columns' depth - ranging from comprehensive insights to completely empty sections.
Common themes in the "explanation" column included data coverage, data availability, definitions, scope, and sources.
Within the “actions taken” column were policy commitments, exclusions, external initiatives, engagement, and targets.
It's notable that certain PAI statements lacked both "explanation" and "actions taken" columns, while others contained vague content, exemplified by statements like "we want emissions to decrease over time, in line with the Paris Agreement."
4) Qualitative information
Among the 30 PAI statements analyzed, the descriptions of qualitative information (Annex I) showcased a substantial variance in length and content. We decided to focus our own assessment on the description of policies to identify and prioritize principal adverse impacts on sustainability factors.
Notably, most statements chose to describe their PAI analysis, some referencing sustainability policies, explaining additional PAI choices, and detailing data sources and/or providers.
5) Additional PAIs
FMPs must opt for reporting at least one additional environmental indicator and one additional social indicator. Within the 30 PAI statements reviewed, two additional PAIs were more frequently chosen:
- Environmental: “Investments in companies without carbon emission reduction initiatives” (PAI 4) - reported in 25 out of 30 statements
- Social: “Lack of anti-corruption and anti-bribery policies” (PAI 15) - reported in 10 out of 30 statements
We at Datia believe that the reason for these choices is that these PAIs potentially do a good job at summarizing the sustainability profile of a portfolio (in the case of PAI 4) and of companies (PAI 15). The high data availability for these PAIs might be another factor.
The analysis summarized in this blog post was presented by Datia’s team in the webinar titled "Insights from the 2023 PAI Statements: Lessons to Craft a Stronger Statement for 2024".
