The Principle Adverse Impact Statement

The European Commission (“Commission”) launched its Sustainable Finance Action Plan in March 2018, including three legislative proposals aimed at: creating an EU sustainability taxonomy; requiring disclosures relating to environmental, social and governance (“ESG”) factors; and the creation of low carbon and positive carbon impact benchmarks. This note focuses on the Sustainable Finance Disclosure Regulation, known as the SFDR or the Disclosure Regulation, and in particular the requirements relating to the principal adverse impact statement (“PAIS”).

Article 4 of the Disclosure Regulation requires financial market participants (“FMPs”)1 to publish and maintain on their websites, where they consider principal adverse impacts of investment decisions on sustainability factors, a statement on the due diligence policies with respect to those impacts, taking due account of the size, nature and scale of their activities and the types of financial products that they make available. Where an FMP does not consider the adverse impacts of investment decisions on sustainability factors, the FMP must publish and maintain on its website clear reasons for why it does not do so, including where relevant information as to whether and when they intend to consider such adverse impacts. This requirement applies from 10 March 2021. The PAIS is intended to show investors and prospective investors how investment decisions made by a FMP have or may have adverse impacts on sustainability factors relating to environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters. Read more below. 

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