On 24 June 2019, the European Securities and Markets Authority (“ESMA”) published a questionnaire, which aims at collecting evidence about what aspects of the financial sector could cause short-term pressure on companies.
ESMA defines “short-termism” as “the focus on short time horizons by both corporate managers and financial markets, prioritising near-term shareholder interests over long-term growth of the firm”.
The impact of short-termism forms part of ESMA’s work on sustainable finance and relates to the European Commission’s Action Plan on “Financing Sustainable Growth. Therefore, ESMA invites investors, issuers, UCITS management companies, self-managed UCITS investment companies, AIFMs and the trade associations of financial market participants to respond to the questionnaire.
The questionnaire covers six areas:
- Investment strategy and investment horizon;
- Disclosure of Environmental, Social and Governance (ESG) factors and the contribution of such disclosure to long-term investment strategies;
- The role of fair value accounting in better investment decision-making;
- Institutional investors’ engagement;
- Remuneration of fund managers and corporate executives;
- and use of credit default swaps by investment funds.
The questionnaire will be open for five weeks, closing on 29 July 2019. It takes the form of a survey and therefore, it is presented in “EUSurvey”, an online survey making tool.
Overall, with this survey ESMA is seeking to collect information on market practices and the views of financial market participants. By responding to the questionnaire, market participants will contribute to ESMA’s advice to the European Commission and as such shape future policy decisions in relation to short-termism in the financial sector. By December 2019, ESMA will deliver a report to the Commission based on its findings, which will present evidence and possibly advice on potential undue short-termism.