ESG disclosure needs standards, says French AM association
AFG's responses to the consultation also revealed that in the association's view, each of the frequency of the public reporting and the liquidity requirements (and related stress tests) applicable to UCITS funds and certain alternative investment funds (AIFs) can contribute to short termism, as well as political and economic instability.
The French asset management representative body also pointed out that long-term investment projects, consistent with supporting a shift towards more sustainable financial and economic system, are not necessarily corresponding to a predefined timeframe. For AFG, different market parties may define their goals in terms of long-term investment on different timeframes.
“Generally, fund investing can take place on a short timeframe (for instances six months on a money market fund) or a longer timeframe (five years recommended period for an equity fund for instance or for a non-retirement employee savings scheme – Plan d’Epargne Entreprise). Regarding from an economic standpoint, one can envisage that the assessment of the results of a long-term investment is to be done on a period encompassing an economic cycle. A shift towards a more sustainable financial and economic system implies progressive efforts, but the assessment of any achievements or results cannot be done on a too short a timeframe,”it stated.
According to the association, sell-side analysts are the only players within the investment value chain to contribute to a large extent to the tendency towards short-termism. In its opinion, asset owners and retail investors contribute to a small extent to the tendency while asset managers do not and the top management of listed issuers to some extent.
Standardised ESG disclosure would contribute to long-term investment decisions
ESMA's consultation also analyses disclosure on ESG factors and the contribution of such disclosure to long-term investment strategies. AFG mostly disagreed on the assertion that disclosure of ESG information by listed companies enables investors to take long-term investment decisions.
Disclosure of ESG information by listed companies does not enable investors to take long-term investment decisions for many reasons in the French asset management association's view. These include a lack of quantitative evidence regarding how the listed company contributes to national or international sustainability targets, lack of consistency between the disclosed ESG policies and evidence of the listed company’s actions and lack of forward-looking disclosure on ESG risks and opportunities. There is also a lack of a clear link between ESG matters and the current and future performance of the listed company, lack of an integrated presentation and analysis of financial and non-financial performance and lack of information on the disclosure framework(s), which listed companies use.
However, AFG agreed on the need for ESG information to be sufficiently detailed and standardised across the EU, it indeed enables investors to take long-term investment decisions. The association also raised a need to assess the effect of the frequency of statements of listed issuers (quarterly statements).