Looking to the Future: What’s Left of This Commission?

Earlier this month the European Commission published its last annual look ahead document for the year to come. This so-called “Work Programme” is the last one to be published before policymakers switch to election mode in the second half of 2023, ahead of the 2024 European elections.

In itself, it only consists in a list of upcoming initiatives. Taken in isolation, is a fairly mundane document that you don’t really need to bother reading (that’s our job!). But it offers the opportunity to take stock of whether the Commission has made good on its intentions from 2019...and whether the 2019-2024 mandate was, to put in Manichean terms, good or bad for private equity.

Much of the initiatives our industry was promised at the beginning of the mandate were already on the table. AIFMD and ELTIF, two of the most important legislative files for the functioning of our industry, are under review. The latter is on the home straight with a very positive outcome achieved (perhaps not entirely unrelated to Invest Europe active advocacy on this #humblebrag), while the former appears to largely leave our industry alone (again – as above and again #humblebrag).

Reviews of the EU prudential legislation were also launched, potentially making it easier for insurers and banks to invest in the long-term, although the final outcome may not reflect the original ambition of the Commission.

What about the remaining ones? The 2023 Work Programme shows they are coming. First, the first 2023 will see a ‘retail investment package’ published in Q1. What this package will include is still to be determined, though we could expect changes to rules on inducements and stronger oversight on fees charged to clients. This seems like an ideal opportunity to review the investor categorisation to re-adjust the oversimplified distinction between a professional and a retail client. Rest assured; we will be pushing for this. Second, we expect a legislative proposal on insolvency later this year, which we are hoping will help to clear up the currently fragmented regulatory landscape, making it more predictable for EU- and non-Eu investors alike, what insolvency regulatory risk they take on across Europe.

An enormous and ambitious EU ESG agenda also defined the mandate. Sustainability has been the cornerstone of the 2019 – 2024 Commission mandate. Things like the European Green Deal, the EU Climate Law, and the Fit for 55 Package, were just some of the cross-cutting legislations brought in under this mandate to increase the ambitions of the EU in terms of climate. If you haven’t heard of any of them, possibly good for your migraine - but maybe not the smartest thing for your long-term investments! Of course, the financial sector - including VC and PE investors - will be expected to play a leading role in achieving the EU’s macro goals in the years to come.

So, a lot of boxes ticked by the Commission, but it is way too soon to be resting on laurels. A renewed focus on innovation, especially in the context of the climate crisis, is essential. A future review of EuVECA may help venture funds to operate and state aid rules should be better adapted to turnaround funds in light of future crises our continent will certainly weather. The whole sustainable disclosure ecosystem needs to be streamlined to be efficient. A lot needs to be done still for markets to operate on behalf of the economy. So, looking ahead, we are encouraged to see that the Commission remains ambitious about those policies that still need work in this mandate. As with all policies, they will need to be tailored to the (geo)political situation in which they are published.

Going by any reliable economic forecast, these policies will be developed during an economic downturn. Thus, there is even more impetus to ensure that our industry (known for long term, diversified, and illiquid investment strategies) is rightly perceived to be a major contributor to the European economy, especially in tough times.