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ESMA consults on short-termism in financial markets

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The EU financial markets watchdog has launched a consultation on potential short-term pressures on corporations emanating from the financial sector.

The consultation takes the form of a survey addressing investors, issuers, and trade associations, and covers six areas:

  • investment strategy and investment horizon;
  • corporate reporting on environmental, social and governance (ESG) matters and its contribution to long-term investment strategies;
  • the role of fair value accounting in better investment decision-making;
  • engagement by institutional investors;
  • fund manager and corporate executive pay; and
  • the use of credit default swaps by investment funds.

The European and Securities Markets Authority (ESMA) said it was “not claiming there is a causal relationship” between these areas and short-termism, but it was seeking stakeholders’ views on them “to better understand their interaction with short-termism”.

In the context of its sustainable finance action plan, in February the European Commission issued ESMA and the other two European supervisory agencies with a request to collect evidence on “potential undue short-term pressure from capital markets on corporations”.

ESMA said the Commission’s mandate indicated that decisions taken by corporations did not “fully reflect long-term aspects that would be required to put the EU economy on a sustainable path and manage the transition towards a low-carbon economy”.

The questionnaire will be open until 29 July. ESMA is due to report to the Commission on the findings by December.

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  • ESMA Paris building

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