Share Transaction Tax NOW

I carried out an analysis of sustainability some years back which dug deep into the behaviour of corporate executives and the investment community who hold shares in listed companies.  Through a series of connected deductions I made the case for a share transaction tax.

This proposal came to my attention again today as I attended the Governance for Sustainability Conference in Oxford today. This is an excellent event convened by the Smith School of Enterprise and the Environment (SSEE) bringing together a range of experts from academia, business and NGOs. There was a particular set of problems came together in the discussion but a solution was elusive.

The observations were:

1. Environmental, social and corporate governance data (known as ESG) are being collected, collated and published ‒ but it is not being acted upon.

2. An investment expert one of the big banks explained why the most effective investment strategy was to invest and hold an investment for a time period beyond 10 years.

3. The head of sustainability for a FTSE 100 corporation explained that the investment analysts trading their shares do not ask questions that look further ahead than 18 months.

4. ESG data has little impact over the short-term (18 months) but can have huge impact over the ten years and beyond.

My deductions are:

1. For ESG data to be acted upon, investors have to take an investment view that extends out beyond ten years.

2. Persuading investors to take the long view is good investing in any case.

3. We need to reconfigure equity markets to steer investors towards taking a long view.

The solution that follows from linking the deductions from the observations is to introduce a share transfer tax (STT) at a level to drive change in investor behaviour. When there is a significant overhead to transfer ownership the logical behaviour change is to switch ownership less often.

The time has come to dust off this proposal and implement it (Adapt and Thrive: The Sustainable Revolution Pages: 178-179). Those who make money in the city of London through churning portfolios or high frequency traders will oppose such a move but the resistance should  be faced down so that sustainability measured by ESG can have real lasting impact.