What makes PAI Reports painful to prepare?

As the implementation of the European Union's Sustainable Finance Disclosure Regulation (SFDR) continues to unfold, financial market participants and financial advisers are grappling with the complexities of preparing Principal Adverse Impact (PAI) reports. These reports require quantifying the impact of investment decisions on various sustainability factors. However, some pain points have emerged, making the process frustrating and time-consuming for many investors in the financial industry.

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Five Pain Points of Preparing PAI Reports

1. Data Challenges: Asset managers have flagged data availability and gaps as one of the biggest hurdles in preparing PAI reports. The variance in data coverage across indicators has created significant difficulties, with data quality and availability varying among service providers. Additionally, the limited coverage of certain indicators, such as hazardous waste, has forced investors to rely on estimations based on a small amount of reported data.

2. Methodological Issues: The complexities of setting targets without sufficient data coverage and the narrow scope of some indicators have posed methodological challenges. Additionally, concerns have been raised about the accuracy of estimations used to address data gaps, potentially impacting the reliability of PAI reports. Transparency in methodology becomes vital to prevent misinterpretation and doubt of the report.

3. Time Lags and Reporting Frequency: The reporting of environmental, social, and governance (ESG) data may lag behind financial data, as firms typically report ESG information annually. This time lag between data disclosure and its inclusion in data sets can hinder the accuracy and timeliness of PAI reports.

4. Time-Consuming Process: Preparing PAI reports can be a time-consuming task. Complying with SFDR's guidelines and methodology requires careful data collection, analysis, and interpretation. This new process demands significant effort and diverts valuable resources from other crucial tasks when it is prepared manually.

5. Costly Data Acquisition: Some investors try to overcome the data challenges using several data providers. An asset manager adopted six data providers across all PAI indicators to improve data coverage and availability. This data-sourcing approach can hardly be adopted widely across financial market participants and financial advisers given the accumulated cost.

However, preparing PAI reports does not have to be frustrating. To streamline the preparation of PAI reports, PortageBay has introduced a PAI report generation tool for investors. It is designed with a template specifically to automate the generation of PAI Reports while providing a transparent, detailed, and explainable methodology. If you are looking for an SFDR reporting solution, reach out to us today at info@portageb.com. Learn how PortageBay can streamline your organization's reporting process, saving you time and resources.