Financial Market Short-Termism

 

The short-term orientation of our economic system is responsible for our society’s vulnerability to crises. We want to address this discrepancy and prepare proposals on how to reign in the financial sector and enable companies to drive the social-ecological transformation.

The current sustainable finance discussion may lead to the false assumption that once ecological risks are disclosed, this will lead to sufficient change in investors’ behaviour. However, this is contrary to financial market logic inherent in most companies and investment funds, which try to extract as much value as possible in the least amount of time.

Financialisation plays an ever larger role in driving investment decisions in the real economy. Publicly listed companies are distributing large amounts of their earnings to shareholders instead of investing in the social-ecological transformation. Private equity investors extract short-term gains from companies instead of making their business model sustainable to the future.

What are yield expectations in the financial sector vs. the real economy? How does this influence investment in the real economy? How can we tackle the trend of buybacks, high corporate debt (debt-taxation-bias) and short-term investment?