Institutional Shareholder Services’ (ISS) responsible investment arm, ISS ESG, announced today the launch of its new SFDR Principal Adverse Impact Solution, designed to facilitate compliance by financial market participants with the new European Union Sustainable Finance Disclosure Regulation (EU SFDR) and to facilitate reporting on “Principal Adverse Impacts” of financial products and portfolios.

The EU SFDR, which went into effect in March, forms part of the EU’s Action Plan on financing sustainable growth. The regulation establishes harmonised rules for financial market participants including investors and advisers on transparency regarding the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability‐related information with respect to financial products.

Among the new rules are requirements for financial market participants to disclose the principal adverse impacts that investment decisions have on sustainability factors, based on a list of indicators encompassing climate and environment, as well as social and employee matters, respect for human rights, anti-corruption and anti-bribery aspects. Data collection and analysis form some of the key challenges of the new regulation for investors.

For its new solution, ISS ESG has reviewed the Regulatory Technical Standards (RTS) pertaining to the SFDR and mapped the principal adverse impact draft requirements to its proprietary ESG data. The solution covers a universe of more than 7,000 corporate issuers and 190 countries, and the company provides a larger universe of up to 25,000 corporate issuers for specific climate and social indicators. Certain indicators are highly sector-specific and ISS ESG assesses the relevance and materiality of the indicator to the industry in question, which defines the number of companies considered for data collection for each metric. The company stated that the solution will soon be augmented with automated portfolio analysis and reporting capabilities.

Till Jung, Managing Director and Global Head of ESG Products at ISS said:

“ISS ESG’s dedicated and tailor-made solution has mapped both the mandatory and additional indicators for corporate and sovereign/supranational assets, leveraging justifiable proxies in the absence of disclosed data, enabling market participants to measure the performance of their investments against the SFDR-defined indicators and metrics in order to comply with the new reporting obligations.”