Your Last Minute Guide to Finalizing the SFDR Entity Level Reports
Still finalizing your SFDR report? Don’t miss these common mistakes
As the June 30th, 2023 deadline for submitting entity level Principal Adverse Impact (PAI) reports approaches, financial market participants (FMPs) must ensure compliance with the SFDR regulatory reporting requirements. In this article, Clarity AI provides guidance for finalizing your report and checks you should perform for common mistakes before hitting submit.
Under Article 4 of SFDR, FMPs are obligated to report on their consideration of adverse indicators of their investment decisions related to sustainability factors. The reporting is an annual requirement, commencing this year, with the first report due by June 30, 2023. FMPs need to complete a reporting template for entity level reporting, encompassing all investments made by the organization. The template includes 18 mandatory PAI indicators, along with a requirement to report on at least one additional environmental and one additional social indicator.
5 Common Errors to Avoid:
1. Insufficient website disclosure: FMPs may fail to report the required metrics per the methodologies defined by the regulation. Further, inadequate explanations of data collection methods, sources, and screening criteria may hinder transparency and stakeholder understanding of sustainable practices. Clarity AI can support accurate reporting of metrics.
2. Incorrect assumption of exemption: While firms with fewer than 500 employees are exempt from reporting, if they avail of the exemption, they are still required to publish a statement on their website, regardless of employee count, prominently explaining their decision not to consider adverse impacts on sustainability factors. Consider whether such a statement aligns with your fund’s sustainability goals and image.
3. Delaying reporting based on size exemption: Going forward, it is possible the size exemption will be removed, mandating all FMPs, regardless of size, to report on PAIs. It is advisable for smaller businesses to initiate reporting as soon as possible to overcome potential roadblocks, gain experience and offer full transparency to their investors.
4. Leaving out investee companies that do not directly provide data: SFDR allows FMPs to report data on a best-effort basis when investee companies are unable to provide it directly. Partnering with a reliable data provider such as Clarity AI can help address this challenge and ensure accurate reporting.
5. Disregarding reporting intervals: FMPs may struggle with the reporting requirements, due to the volume and frequency of reporting four snapshots throughout the year, as required by the regulation. Noncompliance with quarterly reporting also impedes end investors in understanding a comprehensive picture of the portfolio.
There’s still time
If you are struggling to complete your report, there’s still time to get this done correctly. Clarity AI’s comprehensive platform simplifies SFDR alignment and reporting with pre-filled templates, reporting guides, the highest market coverage for PAI data, and automated European ESG Template (EET) creation to ensure your funds have wide market visibility.
With the approaching deadline for SFDR regulatory reporting, it is crucial for FMPs to be well-prepared, avoiding common mistakes and utilizing reliable solutions. Clarity AI’s data and reporting platform offer the necessary tools to streamline the reporting process, ensuring alignment with SFDR requirements. Act now and leverage Clarity AI’s expertise to navigate the complexities of SFDR reporting while promoting your fund’s commitment to sustainability.
Use our free ClarityCheck™ to see how your funds (or any fund) performs against a sample of Principal Adverse Impacts.