G20 Leaders today endorsed an OECD-launched initiative to encourage the flow of institutional investment towards longer-term assets, such as infrastructure and renewable energy projects, in order to strengthen the global economy.
Currently, pension funds, insurers, mutual funds and sovereign wealth funds hold more than USD 80 trillion in assets. Pension funds alone managed over USD 20 trillion in assets as of the end of 2012, with a net annual inflow of savings of over $1 trillion. But only 1% of those assets were invested in infrastructure projects, with an even smaller fraction in clean energy projects.
OECD Secretary-General Angel Gurría said: “The fall-out from financial crisis has exposed the limitations of relying on traditional sources of long-term investment finance such as banks. Governments are looking for other sources of funds to support the long-term projects that are essential to sustaining a dynamic economy. There is huge potential among institutional investors to support development in a range of areas such as infrastructure, new technology and small businesses.”
The High-Level Principles of Long-Term Investment Financing by Institutional Investors, prepared by an OECD Taskforce working together with G20 members, establish a framework for encouraging institutional investment in long-term assets. They set out the preconditions to long-term investment, such as the need for stable macroeconomic conditions, a clear and transparent government plan for projects, as well as opportunities for private sector involvement via public procurement and public-private partnerships investment. The principles also address specific policies, including:
•improving incentives to mobilise higher levels of long-term savings
•strengthening the governance of institutional investors to provide the right incentives for the adoption of a long-term perspectives and the management of often illiquid assets
•ensuring the tax and regulatory framework reflects the particular risk characteristics of the investments , promotes long-term strategies and lowers barriers
•informing and educating consumers about the virtues of long-term saving.
As part of its work for the G20, the OECD will also be intensifying monitoring of institutional investors and carrying out in-depth analysis of a variety of policy and market-based incentives to facilitate long-term investment, including in clean energy.