ESG Europe: Responsible investors oppose European financial trading tax proposals

Warning about unintended consequences of Commission proposals

Leading figures from the responsible investment industry voiced their opposition to the European Commission’s proposed Financial Trading Tax at Responsible Investor’s ESG Europe conference this week.

“I think it’s a terrible idea,” said Howard Sherman, Executive Director of research firm GovernanceMetrics International, on a panel at the event in Amsterdam. “Don’t do it.”
Colin Melvin, the Chief Executive of the BT Pension Scheme-owned advisory firm Hermes Equity Ownership Services, foresaw a “classic case of unintended consequences” which would lead to less engaged ownership from investors. Pension funds would move to investing in derivatives rather than directly.
“It will make the problem of disengaged ownership even worse,” Melvin said, predicting funds as a result will lend out their securities, contrary to their long-term interests.

Jarrko Syyrila, Deputy Director General of the European Federation of Asset Management Associations (EFAMA),added his voice to the view that the trading tax was a “bad idea” that was not in the interests of savers and investors. He took issue with Barroso’s statement that it was “time for the financial sector to make a contribution back to society”.

Some delegates at the event suggested there had been lobbying ahead of the announcement by the investment banking industry.
The Financial Times has cited observers as saying the move would impact pension funds and other “long-only” savers. But Faith groups such as the Methodist Church in the UK, however, have welcomed the idea.
The Commission proposal calls for a 0.1% tax on equity and fixed income trades and a 0.01% tax derivatives deals. It is intended to target high frequency trading – in the process raising up to €55bn a year for the European Union. “If only it were so simple,” writes economist Kenneth Rogoff in a blog.