Standortfördergesetz: Deutsches Aktieninstitut warns against half-hearted reforms

On Wednesday, the draft of the Location Promotion Act is to be approved by the Federal Cabinet. Deutsches Aktieninstitut considers the draft of the Federal Ministry of Finance for a Standortfördergesetz (Location Promotion Act) to be only a first step toward stimulating innovation financing, but one that is far from sufficient.

‘An efficient capital market is crucial for financing the German economy. The low number of IPOs and the declining number of listed companies clearly show that action is needed,’ says Henriette Peucker, Chief Executive and Member of the Board of Deutsches Aktieninstitut. ‘More far-reaching reforms of stock market and capital market law and pension provision are necessary to strengthen the financing of innovation via the capital market. Detailed recommendations for action have been on the table for years. The draft bill, on the other hand, is too unambitious in key areas and must not be allowed to become an excuse for foregoing decisive reforms.’

The draft does set the tone with its promotion of venture capital and the partial reduction of bureaucracy. However, in order to truly trigger ‘positive momentum for the mobilisation of private funds and the growth of the German economy’, as the draft bill itself states as its goal, a more ambitious approach is needed. In its statement on the draft Standortförderungsgesetz, Deutsches Aktieninstitut is therefore calling for an ambitious package of measures in three areas:

Strengthening the investor base

The key prerequisite for greater prosperity and comprehensive innovation financing is broad participation by the population in the profits of the economy. Important levers are pension provision and long-term wealth accumulation. ‘We call on the Federal Government to finally strengthen equity investment in all three pillars of pension provision and wealth accumulation,’ demands Peucker. ‘This is urgently needed so that our pension system can escape the demographic trap and at the same time contribute to the development of the capital markets. If more local money flows into equities, equity funds and pre-IPO financing, the financing conditions for companies will improve. Strengthening equity investment in pensions thus helps to finance attractive business models in Germany and, with them, secure the jobs of the future.’

Modernisation of stock corporation law

Companies should also be able to benefit from more flexible capital measures, as has long been the case in other countries. The sensible introduction of shares with a nominal value of one cent, as contained in the draft bill, is not sufficient for this. In particular, it is necessary to increase the framework for authorised capital, which represents a quick and flexible way of raising capital.

Streamlining capital market regulation

Companies must be freed from unnecessary bureaucracy in order to facilitate the raising of equity capital on the stock market. For example, the cumbersome requirement to electronically tag material information from financial and sustainability reports in accordance with the European Single Electronic Format (ESEF) should be abolished at European level. The automated reading of annual reports, which is to be facilitated by the ESEF format, can be overtaken by artificial intelligence.

Detailed comments on individual proposals in the draft bill and further explanations on a coherent overall concept for strengthening the capital markets can be found in the statement ‘Standortfördergesetz: only small steps’.