Our society tends to have a short-term mindset. This results in damage to people and to the environment, and investments which put short-term profits ahead of long-term success.
This is not good for building sustainable business. And much evidence seems to show that it is not good for investors either, as they are subjected to ‘boom and bust’ cycles based on a quest for high returns. This leads to risk-taking that ultimately undermines the system.
So encouraging long-term thinking in financial markets is crucial to the shift towards a more sustainable economy and society.
Forum for the Future’s research and recommendations:
In July 2011, Forum for the Future launched Overcoming the Barriers to Long-term thinking in Financial Markets, a report funded by Friends Provident Foundation. You can download the full report here and the executive summary here.
The report analyses the reasons why short-term thinking is so entrenched and makes recommendations on specific action that companies, asset managers and investor can take now to change this. It involved research into the behaviours, structures and incentives that reinforce short-termism within the economy and the current initiatives in this area.
Our research identified three key areas where first steps could generate the most momentum:
- more strategic reporting and communication on long-term risks and opportunities between companies and investors;
- deeper questioning by asset owners on whether their investments are designed to meet their long-term needs; and
- improved structures for remuneration that reflect innovation, efficiency and other long-term drivers of value.
We aim to build on this work by working with a range of organisations to implement the actions recommended in the report, and to gather and highlight best practice. We are keen to involve a range of interested organisations and individuals in this project, in the UK and worldwide.
Please get in touch if you want to get involved or share your perspectives.
“Unilever has been around for 100-plus years. We want to be around for several hundred more years. So if you buy into this long-term value-creation model, which is equitable, which is shared, which is sustainable, then come and invest with us. If you don’t buy into this, I respect you as a human being, but don’t put your money in our company.”
Paul Polman, Unilever, quoted by Henderson (November, 2010)
We are also launching a 2-year project called Practical Innovations for the Long-Term (PILoT). This will involve a group of leading organisations, including investors and companies, implementing practical innovations for the long-term. Each organisation will work on a practical project, helped by expert and tailored support from Forum for the Future. Our PILoT factsheet gives more detail on this.
Please get in touch with Ruth Curran if you would like us to keep you informed or if you would like to get involved in any part of this project.
For details about our wider work with the finance sector, please contact Alice Chapple.
- Investors fail to take a long view, focusing on short term - FT Advisor
- Unilevers Polman hits out at City’s short term culture - The Telegraph
- Short-term profit long-term losses? - The Guardian
- Short term thinking - The Times [subscription needed]
- Report calls for tax breaks for long term investors - Responsible Investor [subscription needed]