Only one in five management companies publicly disclosed a Principal Adverse Impact statement in 2022 according to PwC study, “Mind the Gap: Principal Adverse Impact Statements in the AWM Industry”


PwC Luxembourg has conducted an in-depth study on the Principal Adverse Impact (PAI) disclosures. Being the first report of its kind, PwC analysed two-thirds of the total 3,212 management companies (ManCos) registered either with a UCITS (UCITS ManCo), Alternative Investment Fund (AIFM), or both licenses (Super ManCo) with European Securities Markets Authority (ESMA).

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31/01/2024 |
  • Michael Horvath

    Michael Horvath, Partner and Regulatory Advisor, PwC Luxembourg

  • Only 21.6% of MancCos are disclosing a PAI statement. Only 21.6% of ManCos across nine European countries issued a publicly accessible PAI statement, with a larger share of 39.1% declaring to not report on the PAIs.
  • In line with expectations, AIFMs face more difficulties in disclosing quantitative and qualitative rich statements, with 38.4% of them issuing a “Declaration to not Report”.
  • Disclosed PAI statements show room for improvement in different areas:
    • Only about one in five issued PAI statements (21.9%) that strictly followed the template suggested by the European Commission under the Sustainable Finance Disclosure Regulation (SFDR)’s Regulatory Technical Standards (SFDR Level II);
    • Despite the regulator's effort to increase transparency, only 21.0% of PAI statements were in a clearly defined and easily accessible section dedicated to sustainability-related disclosures on the ManCo’s home page;
    • With 25.9% obtaining a grade of ‘F’ and none obtaining a grade of ‘A,’ PwC’s absolute PAI Transparency Score shows large contrasts in the quality and data included in publicly available PAI statements, with a considerable number (27.4%) being incomplete or in instances left entirely blank;
    • Reports are not required to be published in an electronic reporting format (e.g. xHTML and marking up information with XBRL tags) and therefore not easily analysed and partially not comparable.
  • Results of selected PAIs provide limited insights:
    • For the environment-related PAIs, the self-reported data shows that Super ManCos have the highest carbon footprint with 450.4 t/EURmn, while AIFMs and UCITS ManCos follow with 399.2 t/EURmn and 395.7 t/EURmn respectively;
    • With investee companies of the three ManCo categories having on average between 29.8% and 32.6% of women on the boards across their investments, the study’s findings on PAI 13 (board gender diversity) disclosures are in line with recent studies on board gender diversity in Europe.

Data from a new study by PwC Luxembourg shows that only 21.6% of the ManCos in the scope of the study issued a publicly accessible PAI statement. Of the issued statements, just over one in five (21.9%) followed the template prescribed by the SFDR Level II, resulting in significant disparities with limited data comparability. 

The report ‘Mind the Gap: Principal Adverse Impact Statements in the AWM Industry’ also found that 22.2% of the firms surveyed were not compliant with the regulations, in other words neither published a PAI statement nor a declaration on why they would not report on PAIs at entity level. A further 7.5% of companies, while they had committed to disclosing the data, were not compliant with SFDR Level II. PwC Luxembourg reviewed data from 2,012 ManCos across nine European countries,[1] accounting for 62.6% of the total number of UCITS ManCos, AIFMs, and Super ManCos registered with ESMA, finding wide variations in the quality and substance of publicly available PAI statements. While there were positive examples, the majority of published statements were incomplete, lacked quantitative- and qualitative-rich insights, or in some instances were left entirely blank.

In addition, 39.1% of the firms surveyed declared they did not consider the PAIs of their investment decisions on sustainability factors, with the most frequently observed reasoning being insufficient availability of satisfactory and pertinent non-financial data, as well as uncertainties regarding the data collection methods required.

The report presents a series of recommendations for firms to ensure better compliance and alignment with regulators’ expectations in future PAI statements, including the systematic usage of the template provided by the European Supervisory Authorities, methodology and data management, as well as highlighting the benefits of accurate PAI reporting for investors. On the other hand, 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. This would increase the usefulness for interested stakeholders.

Commenting on the report, Michael Horvath, Partner and Regulatory Advisor, 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.

Expected growing pains are clearly evident as:

  • the required sustainability information is in many instances not easily accessible or available at all from the invested companies;
  • for reported PAI results it is in general unclear what controls and quality management measures were put in place;
  • the reporting template required to be used by the firms is currently not designed to ensure comparability for reported results between firms as practices differ significantly. This is why we have developed our proprietary scoring model, the PwC PAI Transparency Score Card, which tracks compliance, completeness and transparency of PAI disclosures, to support improved future benchmarking on entity level.”

Olivier Carré, Deputy Managing Partner, Technology & Transformation Leader PwC Luxembourg also 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. To achieve this, management companies need to ensure they have reliable and technologically-advanced data collection mechanisms to efficiently track progress, alongside a systematic methodology with well-defined benchmarks”.

[1] France, Germany, Ireland, Italy, Luxembourg, Liechtenstein, Netherlands, Spain and Sweden.

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