Eumedion, the Dutch corporate governance and sustainability forum which represents 69 long-term institutional investors with more than €1trn in combined assets under management, has called for European bond markets to be developed to boost long-term finance.
The body, whose members include major Dutch pension funds and asset managers as well as international investors, was responding to the European Commission’s Green Paper on long-term financing.
The paper, whose public comment period ended this week, is intended to initiate a “broad debate” about the “complex and pressing challenges” of the long-term financing of the European economy.
“An alternative option to strengthen financing through non banking parties and stimulate sustainable growth is to further develop EU bond markets,” Eumedion says. It sees “great potential” for debt funding, given that just only 15% of the credit needs of EU firms come via capital markets, against 47% in the US.
It argues that the bond markets are currently only accessible by large corporates domiciled where there are developed corporate bond markets. A “change in corporate and regulatory culture” was needed so that moremedium sized companies can replace bank loans by issuing bonds. This would in turn free up bank capital for smaller companies needing credit.
Eumedion saw a greater role for the European Investment Bank in this; as such it supports the Project Bond initiative of the European Commission and the EIB, which is looking at the feasibility of bond financing for infrastructure.
“Transferring corporate lending from banks to debt capital markets (disintermediation) will not only boost the development of EU bond markets and thus create new investment for institutional and other investors,” it states.
The body also argues that concentrating equity portfolios to help engagement with investee companies is discouraged by prudential rules which “reward diversifying the equity portfolio”.
It also has “strong reservations” about ideas to encourage long-term share-ownership such as loyalty dividends and loyalty voting rights.
“The real issue is not how to encourage investors to keep hold of their shares for longer, but how to encourage more of them to take their responsibilities as owners more actively, irrespective of the length of their holdings.” Eumedion response