SFDR Reporting in Private Markets: An Analysis of 2024 PAI Data

by Alina Simion, ESG Data

The Sustainable Finance Disclosure Regulation (SFDR) continues to shape how financial market participants, particularly those in the private markets, approach transparency and reporting on sustainability. Octus ESG Data analyzed this year’s SFDR reporting, which highlighted key trends in data disclosure across various Principal Adverse Impacts (PAIs). While some areas show significant progress in transparency, others continue to present challenges for investors in the private sector.

The disclosure of GHG emissions presents a mixed reporting landscape across Scope 1, Scope 2, and Scope 3. Scope 1 and Scope 2 GHG emissions show a strong base of reported data, with over 57% of companies directly disclosing this information. However, Scope 3 GHG emissions present a more challenging scenario. While 44% of companies do report this data, it falls considerably short of Scope 1 and 2 reporting levels, being the highest level of non-disclosure among the emissions scopes. Compared to the 2023 level, the trend is upwards; however, the disclosure of Scope 3 continues to showcase persistent difficulties. It is this substantial rise in Scope 3 emissions that stands out as the predominant driver of the increased portfolio footprints and intensities observed year-over-year, as the Carbon footprint and GHG intensity PAIs directly reflect these changes in reported GHG emissions.

Progress in disclosure is more evident in certain governance and social metrics. Board gender diversity, for example, stands out as a strong PAI in direct disclosure, with 68% of companies reporting this data point. This suggests a relatively straightforward and widely adopted reporting practice for this PAI. Correspondingly, the not reported data is considerably lower than many other PAIs. In contrast, Unadjusted gender pay gap shows a lower level of direct reporting compared to Board gender diversity, with a substantial percentage of data remaining undisclosed, at 73%. This indicates that granular social data, particularly concerning compensation, still faces significant disclosure gaps. On the other hand, policies related to corporate governance exhibit strong disclosure, with high direct reporting percentages for Investments in companies without workplace accident prevention policies (79%), Investments in companies without anti-corruption policies (78%), and Investments in companies without anti-bribery policies (78%). This suggests a strong focus on basic policy disclosures within companies, likely driven by established corporate governance practices.

While some areas have strong disclosure, a number of environmental PAIs still have very low direct reporting rates. Emissions to water, for instance, currently has the lowest direct reporting coverage among all PAIs, with 96% of companies not disclosing this data. Similarly, Activities negatively affecting biodiversity-sensitive areas show a 10% reporting rate, with a large majority of data not being disclosed by companies. Hazardous waste ratio demonstrates a higher, though still limited, direct reporting of 28% compared to emissions to water and biodiversity, with a considerable portion remaining not reported. Furthermore, a significant 60% of companies do not report on their Share of non-renewable energy consumption and production. Energy consumption intensity per high-impact climate sector has a higher reporting rate than several other environmental PAIs, with 52% of companies disclosing data, although a significant portion remains unreported.

Due to minimal reporting for certain PAIs, ESG analysis is essential for generating the necessary data. For example, the data for Exposure to companies active in the fossil fuel sector is predominantly derived through ESG analysis due to minimal direct reporting from companies. Similarly, Violations of UN Global Compact principles and OECD Guidelines for Multinational Enterprises, Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact principles and OECD Guidelines for Multinational Enterprises, and Exposure to controversial weapons are almost entirely reliant on ESG analysis for data generation, with virtually no direct company reporting.

The varying levels of reported data highlight the ongoing challenge for private market participants in fully meeting SFDR requirements and providing comprehensive sustainability insights. These trends also underscore the need to thoroughly assess available data and actively engage with portfolio companies to improve disclosure. As the regulatory landscape evolves and investor demand for verifiable ESG data intensifies, companies prioritizing robust data collection, refined reporting, and greater transparency across all PAI categories will be better positioned to navigate complexity, mitigate risk, and unlock new sustainable investment opportunities.