The European Securities and Markets Authority (Esma) has published its findings on potential undue short-term pressures in securities markets.
The research came after the European Commission asked the three ESAs - Esma, EBA, Eiopa - to investigate sources of short-termism and the effect on corporations that may require regulatory responses. The work forms part of the ongoing Commission commitment to sustainable finance and its Action Plan on Financing Sustainable Growth.
Esma has made recommendations for action in two key areas in response the findings:
Disclosure of Environmental, Social and Governance (ESG) factors including:
- amending the Non-Financial Reporting Directive (NFRD);
- promoting a single set of international ESG disclosure standards;
- requiring the inclusion of non-financial statements in annual financial reports; and
Institutional investor engagement including:
- a review of the White List under the Takeover Bids Directive;
- a potential shareholder vote on the non-financial statement; and
- monitoring the application of the Shareholder Rights Directive (SRD II).
Steven Maijoor, ESMA chair, said: "Short-termism in securities markets is often the cause of companies failing to take into account long-term objectives and the sustainability of their strategy and investment decisions."
"The short-term performance pressures on companies can result in an excessive focus on immediate profit extraction hindering them in meeting sustainability goals. We need to ensure that firms move to a long-term approach towards more sustainable finance while factoring in the risk climate change carries."
"We believe that the recommendations contained in today's Report provide the basis for the EC to make progress in addressing the short-termism issue and support the implementation of the Sustainable Finance Action Plan."
Esma based its conclusions on the gathering of evidence, which included reviewing financial literature, conducting a public survey and hosting a stakeholder workshop. It also sought input from the Securities and Markets Stakeholder Group (SMSG).
ESMA's work on undue short-term pressures forms part of its work on sustainable finance and relates to the European Commission's Action Plan on ‘Financing Sustainable Growth'.
To read the full Report on Undue Short-Termism, click here: