Leaders of G20 nations meeting in Russia have endorsed a series of proposals to encourage longer-term investment, including possible changes to taxes and governance principles for institutional investors.
The proposals, initially put forth by the OECD, are aimed at encouraging institutional investors to shift more resources to long-term investments in renewable energy, infrastructure and more.
‘The fallout from the financial crisis has exposed the limitations of relying on traditional sources of long-term investment finance, such as banks,’ says Angel Gurría, the secretary general of the OECD, in a news release. ‘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 OECD says sovereign wealth funds, pension funds, insurers and mutual funds currently manage a combined $80 tn in assets, and more of that should go toward longer-term investment. Pension funds alone control $20 tn, according to the OECD, and only 1 percent of that is invested in infrastructure projects.
The OECD proposals, known as the High-Level Principles of Long-Term Investment Financing by Institutional Investors, come in response to a request to the OECD in February by G20 finance ministers. The ministers were seeking a plan to promote investment in infrastructure to help governments cope with growing demands worldwide.
The principles number more than 50, including the creation of greater incentives for long-term investment, stronger governance of institutional investors with a focus on long-term outlooks, and the management of illiquid assets. Tax and regulatory changes to promote long-term investments are also covered, as is international education for both institutional investors and private individuals on the virtues of investing for the long term.
The OECD says it 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.’
