Task 4: Ensure capital acts for the long term
Investors of capital can demand more from their money, using their influence to drive long-term, socially useful value creation in the economy in the interests of their beneficiaries.
In broadening their expectations on capital, investors can reward companies for incorporating long-term risk and value creation in their business models. Expectations can be set and reinforced in numerous ways. These include the agreements established between different intermediaries in the financial value chain, shareholder votes on policies that do – or do not – align with long-term value creation (such as remuneration and environmental performance), and the tools used to translate future business opportunities into present-day value.
Extending the timeframe over which financial risks and returns are modelled, and opening the analysis to key environmental, social and governance (ESG) risk factors, will build alignment between the way capital is deployed and the interests of its ultimate beneficiaries – the public.
This big and urgent reform faces an uphill climb against a well-known culture of short-termism in the finance sector, and warrants action from governments, regulators, capital owners, financial intermediaries, consultants, risk experts and business.
What would it take to incentivise the financial value chain to seek long-term performance?