Christian Thimann on liquidity, short-termism and what’s next for HLEG

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The big challenge for HLEG is that sustainability is a conceptual issue, says Christian Thimann, Group Head of Regulation, Sustainability and Insurance Foresight at Axa Group, and Chair of the European Commission’s HLEG.
“We’re talking, in reality, about how we overcome short-termism; how we reorient finance to be structured for the long term; and how we square the short-term disciplinary effect of financial markets with the fact that, to create real returns in the economy and protect the planet, we need patience,” he tells RI. And those concepts are not always easy to reconcile with other more established ones, he adds – even when they are driven by the same desire to create stable, responsible financial markets.
“For example, today in financial regulation, there is a lot of primacy given to liquidity: the more liquid you are, the better,” Thimann explains, referring to the raft of regulation introduced after the financial crisis. “But sustainability is long term, and so fundamentally it requires illiquidity. And that’s the dominant tension in all this: how can we square the fact that for society and the environment, we need long-term commitments and stability, with the desire from regulators and markets to foster liquidity. Especially when both perspectives are understandable.”

The document has attracted around 100 formal responses, which will be considered in the second half of the year

So far, attempts to do this have resulted in eight early recommendations and a thorough interim report, on which a public consultation closed last week. The document has attracted around 100 formal responses, which will be considered in the second half of the year, as HLEG develops its final recommendations.
The group has been given “very much a free hand” when it comes to what can be in the final report, Thimann says, adding that it “will have to dive much more specifically into the recommendations and develop them much further; and perhaps add further ones until we have a comprehensive set”. It was slated to be presented to the European Commission in December, but that was before HLEG decided to run a consultation, and now the deadline is expected to be early next year.
Monthly HLEG meetings in Brussels resumed last week, following the summer break. They typically comprise around 50 people – 20 members, 10 observers, six members of the secretariat, and a number of representatives from DG Fisma, DG Ecfin, DG Environment, DG Justice and other relevant bodies.They are hosted at the Commission’s headquarters. And the Commission has already pledged to act on the recommendations swiftly. In the mid-term review of the Capital Markets Union, published in June, for example, the Commission identifies “decid[ing] on the concrete follow-up to recommendations by the High Level Expert Group on Sustainable Finance” as one of its ‘priority actions’, and states the first quarter of next year as its deadline. “It’s wonderful,” says Thimann. “Not just because of the novelty for each of the members of getting to work hand in hand with a regulator, but because it’s not often in the life of financial-sector representatives, NGOs or academics that policymakers says they will consider your ideas immediately.”
The three European Supervisory Authorities – the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority – are expected to engage with the recommendations too, although ESMA told RI recently that it had not done so yet. “We have written to them, and we understand that they are looking closely at what we’re recommending – namely that ESAs take a greater role in sustainability,” says Thimann, adding that their formal response is still pending.
Once the ink is dry on the final recommendations, it is not clear what will happen to HLEG. Whether the group will go on to tackle further ESG issues is so far undecided, and at the mercy of the European Commission. Thimann says – unlike the TCFD, of which he is also the Vice Chair, and where members were added throughout the first year – he would expect HLEG members to remain the same. There are few of the 20, however, that have strong ESG expertise beyond climate and the environment, so if the group stays static, they may have less success conquering social and governance recommendations.
“What the Commission has asked us to look at is ESG, but with a focus on E,” says Thimann. “It’s on climate that we can speak about a clear timeline, and where we already have a Paris Agreement and a quantified objective. But saying that, it’s important that all our considerations include social and governance as well, because sustainability means development that is durable in an economic, social and environmental dimensions – and no booms and busts, no inequality and exclusion, and no environmental degradation.
It’s not something that can be achieved with the stroke of a pen, but neither do you have to rewrite the entire body of financial regulation. The challenge is to be focused, and find the concrete parts that can we can actually work with.”