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ACCA fully endorses the aim of the new ELTIFs framework, which is designed to help investors who want to invest in companies and projects with long-term timescales.
In its response to the EC Green Paper on Long-Term Finance, the global accountancy body supports the goal of creating a business environment which promotes a more long-term focus in planning and investment.
John Davies, head of technical at ACCA, says: "The recent financial crisis has shown that any business that aspires to being successful over the longer term must consciously adopt strategies to bring this about and have access to sources of funding which facilitate them. Rules on the ways that businesses are governed and managed, and report on their performance, make up part of the framework that can help achieve this outcome. However, bringing the desired change about will require not only action by companies but also supportive behaviour from investors, market players and wider society. The ELTIFs framework is therefore a welcome step forward as it will hopefully improve the ability of investors to identify long-term investment objectives funds."
"The business environment in general must develop in a way which is not characterised disproportionately by an expectation of immediate results. Investment activity intended to generate income for expressly long-term purposes, in particular pension saving funds, should adopt a much clearer focus on the long term. In addition, on a wider political level, it has to be accepted that a greater concentration on the longer term will inevitably mean businesses and individuals foregoing consumption in the short term and, if necessary, imposing regulatory restraints on business activities which offer the prospect only of short-term or socially irresponsible profit", John Davies adds.
In its response to the Green Paper on Long Term Finance, ACCA calls on the EU Executive to devote further attention to the current and potential future role of equity finance. Given the changing nature of public and private capital, it is extremely difficult now for businesses to finance growth by debt. Financing today’s technology-based businesses is typically only possible through equity, this channel of funding should therefore assume a greater role in the European Commission’s financing strategy.
"Given the hope being invested in the private sector, and especially SMEs, to spearhead the return to growth, wider access to equity funding for the SME sector should be an important element of any long term strategy", John Davies explains.
ACCA also believes that another significant dynamic that the EU decision-makers should acknowledge in their plans is the capacity of private businesses to plan effectively to meet their financial needs and manage their affairs on an on-going basis.
John Davies stresses: "Research undertaken in the UK suggests that businesses that have financially trained staff and are able to produce regular management accounts are more likely to be successful when applying for finance. Yet only a minority of SMEs have trained staff and produce regular accounts, and even fewer produce, additionally, business plans. There is also evidence to the effect that innovative projects are more likely to fail because of internal financial management defects than due to a lack of external funding. Accordingly, any comprehensive strategy on this issue needs to emphasise the need for strengthening the financial capability of SMEs."
For ACCA, the supply of and access to long-term financing is a necessary prerequisite for the adoption of long-termist business strategies. Nevertheless, the long-term focus should not necessarily be the required universal norm in all circumstances. Individual enterprises and investors may well have different time horizons, and these should be respected.
"In a diverse business environment, it should also be seen as healthy for entrepreneurs to be able to create and manage companies to achieve short-term objectives, alongside the long-term ones. Also, whatever the time horizon of individual businesses, it is likely that most will have a range of capital needs, and short-term liquidity financing will in all likelihood be a prominent element of those needs. In seeking to enhance the long term perspective in planning and investment, the contribution that short-term funding can make to sustaining business activity should not be devalued", John Davies concludes.