Only one in five management companies in Europe are publishing a legally required statement detailing how investment decisions may negatively affect sustainability factors. This encompasses aspects like environmental, social, and employee matters, human rights, and anti-corruption.
A PwC study reveals that just 21.6 percent of 3,212 investment management companies in nine European countries have disclosed a Principal Adverse Impact (PAI) statement. Furthermore, 39.1 percent of firms have declared not reporting on the PAIs.
Michael Horvath, a partner at PwC Luxembourg, acknowledged the clear challenges faced by companies. “Expected growing pains are clearly evident,” he said.
Under the EU’s Sustainable Finance Disclosure Regulation (SFDR), financial firms are obliged to publish their due diligence policies concerning the impact of their financial products. Should a firm choose not to publish this information, it must explain its reasoning on its website.
PAI info hard to find
PwC Luxembourg’s study, titled ‘Mind the Gap: Principal Adverse Impact Statements in the AWM Industry’, examined 2022 statements and highlighted significant shortcomings in sustainability reporting among European management companies. The study found that only 21.9 percent of firms adhered to the EU SFDR template for PAI reporting, and nearly 80 percenet of the PAI statements were not easily accessible on the companies’ websites.
Of those that did issue PAI statements, the quality and comprehensiveness varied significantly. Many reports lacked clarity and accessibility, and a considerable number were incomplete or, in some instances, entirely blank. Not a single ManCo received an ‘A’ grade in PwC’s PAI transparency score. One out of four flunked with an ‘F’.
Olivier Carré, deputy managing partner at PwC Luxembourg, emphasised the necessity for management companies to develop reliable and advanced data collection methods and systematic methodologies with clear benchmarks. Big Four consultancies like PwC act also as advisors to ManCos on these topics. Helping companies comply with legal requirements in sustainable finance have become a significant part of their business.
‘Much work to be done’
“Much work remains to be done if PAI statements are to play a pivotal role in informing stakeholders,” Carré said. “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.”
The study also found that Super ManCos, holding both a Ucits and AIFMD licence, had the highest carbon footprint, at 450 tons per million euro. The environmental and social metrics, such as carbon footprint and board gender diversity, were noted as key areas of these disclosures.
PwC’s analysis highlights the need for improved data collection and standardised reporting methodologies to enhance PAI disclosures’ quality. This is considered essential as sustainable finance regulations evolve, presenting both challenges and opportunities for management companies in aligning with broader sustainability goals.
The consultancy reviewed management companies in France, Germany, Ireland, Italy, Luxembourg, Liechtenstein, the Netherlands, Spain, and Sweden.