The European Supervisory Authorities have each published advice to the European Commission on undue short-term pressure from the financial sector on corporations. The ESAs comprise the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The ESAs' advice responds to the European Commission's request in June 2019 for evidence and possible advice on potential undue short-term pressure by financial service participants on corporations. The Commission asked the ESAs to: (i) provide evidence of any short-termism and, if any, the consequences thereof; (ii) assess the drivers of such short-termism, including the effects of regulation on financial market participants, for example, the guidance on remuneration practices; (iii) identify existing regulations that either mitigate or exacerbate short-term pressures; and (iv) evaluate the need for regulatory or policy action and propose specific areas where action is needed. The ESAs' advice, summarized below, may result in the Commission proposing amendments to several pieces of EU legislation, such as the Capital Requirements Directive and related Regulation, the Markets in Financial Instruments package and the Non-Financial Reporting Directive.

The EBA report on short-termism in the banking sector analyzes the potential short-term pressures that banks exert on corporate clients as well as the pressure banks may be under from their own shareholders and capital markets. It also considers whether banking regulations aggravate or mitigate short-termism. The EBA confirms that it did find evidence of short-termism, but does not classify it as necessarily "undue". The EBA makes the following recommendations:

  • maintaining a robust EU prudential framework for banks: the EBA has committed to assessing whether a dedicated prudential treatment of exposures related to assets or activities associated substantially with environmental and/or social objectives would be justified;
  • adding requirements for sustainability considerations into banking sector legislation, including introducing requirements to implement long-term sustainable business strategies and incorporating environmental, social and governance risks into risk management requirements;
  • continuing the establishment of a framework for enhanced and standardized disclosure of long-term risks and opportunities, including ESG-related information, by both corporations and banks; and
  • encouraging data access and information flows between the banking sector and corporates to enhance awareness of sustainability challenges and ESG risk.

ESMA's report summarizes the evidence that ESMA obtained and the recommendations to the Commission on investment strategy and investment horizon, ESG disclosure, the role of fair value in better investment decision-making, institutional investor engagement, remuneration of fund managers and corporate executives and the use of Credit Default Swaps by investment funds. ESMA's recommendations include: (i) improving issuers' ESG disclosures to enhance comparability, relevance and reliability, including through encouraging the development of international standards; and (ii) reviewing the White List under the Takeover Bids Directive.

The EIOPA did not find evidence of undue short-termism in insurance and institutions for occupational retirement provision. The EIOPA's recommendations include: (i) establishing a cross-sectorial framework to promote long-term investments; and (ii) aiding the publication of long-term performance benchmarks to focus on long-term value creation.

View the EBA's advice.

View ESMA's advice.

View EIOPA's advice