SFDR Update: ESAs call for stronger Principal Adverse Impact disclosures in 2025

The European Supervisory Authorities (ESAs) have just published their 2025 Report on voluntary disclosures of Principal Adverse Impacts (PAIs) under the Sustainable Finance Disclosure Regulation (SFDR). (You can view the full report here)

Their message is clear: progress has been made, but more effort is needed.

A quick refresher: what are PAIs?

PAIs are the most significant negative impacts that investments can have on sustainability factors, from greenhouse gas emissions and biodiversity loss to social and employee matters, human rights, and anti-corruption issues.

Under Article 18 of SFDR, financial market participants are expected to disclose how they identify, assess, and address these impacts. For some firms, these disclosures are mandatory; for others, voluntary but strongly encouraged.

The aim is to create transparency, comparability, and accountability across the financial sector. In short: to make sure capital flows with a clearer view of its sustainability impacts.

What the 2025 ESA report shows

The ESAs’ analysis is based on disclosures made in 2023–2024, along with insights from national supervisory authorities. Here are the standout findings:

1. Quality is improving
   Large firms, especially international players, are publishing more complete and structured PAI statements at both entity and product level. Disclosures are starting to look more like decision-useful reporting, rather than standardized cookie-cutter text.
   
   
2. But smaller firms are lagging
   Many smaller financial market participants still blur the line between marketing ESG ambitions and actual, SFDR-aligned PAI disclosures. The result: inconsistency, vagueness, and difficulty comparing across firms.

1. Good practices are spreading
   Supervisors have noticed improvements in areas like clearer metric use, explanations of methodologies, and alignment with the technical standards. Firms are learning from each other and iterating.
   
   
2. Regulatory pressure is building
   The ESAs are calling for both firms and supervisors to raise their game. As the SFDR framework continues to evolve, expectations will only increase, and the current review of SFDR could result in more binding requirements.
   
   

Why this matters for financial market participants

For larger firms, this report reinforces the need to keep refining disclosure practices and preparing for stricter oversight.

For smaller firms, it’s an early warning. Staying vague might feel safe now, but it risks creating regulatory, reputational, and commercial gaps down the line. Investors, partners, and clients are watching closely, and transparency is quickly becoming a differentiator.

Think of PAI disclosure not just as compliance, but as:

• A credibility builder — solid disclosures enhance trust with stakeholders.
  
  
• A risk shield — being ahead of regulation reduces exposure to fines or scrutiny.
  
  
• An operational tool — improving internal data flows and governance creates better decision-making across the business.
  
  

What firms should do next

Here are some practical steps to take before the next reporting cycle:

• Audit your current PAI statements: check if they are aligned with SFDR templates at both entity and product level.
  
  
• Strengthen your data foundation: ensure you can reliably capture and report on the key indicators. Weak data is one of the biggest barriers supervisors highlight.
  
  
• Benchmark against best practice: look at larger peers’ disclosures to identify gaps and opportunities for improvement. (At Datia, we did this with our PAI analysis the last couple of years)
  
  
• Engage internally: disclosures require collaboration across sustainability, compliance, risk, and investment teams.
  
  
• Stay ahead of the regulatory curve: follow updates from the ESAs and national authorities to anticipate upcoming changes.
  
  

Final word

The ESAs’ latest report confirms a positive trajectory: disclosures are improving, credibility is rising, and sustainable finance is maturing. But it also underlines that we’re not there yet.

For firms, especially smaller ones, the message is simple: start investing in your disclosure processes now. Strong, data-driven reporting is no longer a “nice to have,” but a “need to have.” It’s the foundation for compliance, trust, and competitive advantage in sustainable finance.

Datia’s take

At Datia, we see disclosures as more than compliance. They’re an opportunity to show leadership, build trust, and drive real impact.

That’s why we built a platform designed to:

• Automate PAI data collection and reporting across portfolios
  
  
• Benchmark disclosures against industry peers and best practice
  
  
• Stay ahead of evolving SFDR requirements with built-in regulatory updates
  
  

Whether you’re a large asset manager or a smaller financial market participant, we help you move beyond vague statements and deliver disclosures that are transparent, reliable, and decision-useful.

📩 Ready to take your PAI disclosures to the next level? Discover our updated PAI-Statement Solution or get in touch with our team today.