EU looks at investment mandates and fund manager incentives in new long-termism Green Paper

Consultation focuses on role of institutional investors

The European Commission is exploring the role of investment mandates – and the incentives that asset owners give to their managers – as a way to boost long-term investment both in the wider economy and climate change mitigation efforts.

The issue forms one aspect of a new consultative ‘Green Paper’ on long-term financing that has been released by the Commission.
“How can the mandates and incentives given to asset managers be developed to support long-term investment strategies and relationships?” the Commission asks in the long-awaited document. “What kind of incentives could help promote better long-term shareholder engagement?”
And the Commission, like the Kay Review in the UK last year, also asks whether there is a need to “revisit” the definition of fiduciary duty in long-term financing.
The document, which kicks off a three-month consultation period, is notable for placing institutional investors such as pension funds at the heart of the debate about long-term financing. Various structural and regulatory options are on the table and the deadline for comments is June 25.
Also on the agenda is the role of non-financial information in contributing to better investment decision-making.

“Trends in climate change and the depletion of natural resources further underline the sustainable growth challenge, as they call for more long-term investment in low-carbon energy, energy and resource efficiency and infrastructure,” the Commission says.A key question is whether Europe’s traditional dependence on banks to finance long-term investment should give way to a more diversified system of capital market financing and greater institutional investor involvement. Any action taken could be both legislative and non-legislative.

“What incentives could help promote better long-term shareholder engagement?”

The consultation complements the EU’s action plan on corporate governance.

It also looks at the possibility of pooled investment vehicles to help boost institutional investment in infrastructure. The EU says a finance roundtable has been set up to identify ways to develop adapted finance and “innovative financial instruments” for supporting resource efficiency.

The EU initiative comes as the Association of British Insurers (ABI) is also launching an investigation into short-termism, in the latest response to the Kay Review. The probe will be headed by Robert Talbut, the Royal London Asset Management (RLAM) investment head who chairs the ABI’s investment committee, and Robert Hingley, the ABI’s director of investment affairs. The Financial Times reported that former Citi executive Angus Bogle, has also been recruited to help oversee the investigation, expected to report in April. Link