On 6 February 2019, the European Commission issued a call for advice to each of the European Supervisory Authorities (ESAs) to develop a report presenting evidence and possible advice on potential undue short-term pressure on corporations.

The ESAs are asked to investigate potential sources of such pressure on corporates stemming from the financial sector. If evidence reveals significant issues, the Commission invites the ESAs to also assess whether these issues could be addressed by regulators and to provide advice on areas which regulators should address.

The call for advice relates to Action 10 of the Sustainable Finance Action Plan that aims to foster transparency and long-termism in financial and economic activity by exploring possible drivers of undue short-termism.

Action 10 provides:

  • To promote corporate governance that is more conducive to sustainable investments, by Q2 2019, the Commission will carry out analytical and consultative work with relevant stakeholders to assess: (i) the possible need to require corporate boards to develop and disclose a sustainability strategy, including appropriate due diligence throughout the supply chain, and measurable sustainability targets; and (ii) the possible need to clarify the rules according to which directors are expected to act in the company’s long-term interest.
  • The Commission invites the ESAs to collect evidence of undue short-term pressure from capital markets on corporations and consider, if necessary, further steps based on such evidence by Q1 2019. More specifically, the Commission invites the European Securities and Markets Authority to collect information on undue short-termism in capital markets, including: (i) portfolio turnover and equity holding periods by asset managers; (ii) whether there are any practices in capital markets that generate undue short-term pressure in the real economy.

The final reports are expected to be published in December 2019.