Article is an extract from John Gandolfo’s video for the Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs)
In November 2018, on the eve of the G20 meeting in Buenos Aires, Argentina, leaders from the public and private sectors gathered for a global investor forum to agree on a joint action needed to tackle global challenges and usher in a new era in sustainable investing. The group included Heads of State, Ministers of Finance, executives from global investment firms with combined assets under management of over 20 trillion dollars, and heads of international organizations. At the forum, institutional investors called for private and public investment strategies, economic policies, and financial regulations to keep up with the rapid pace of global changes, including major shifts in demographics and wealth, the spread of disruptive technologies, and the effects of climate change.
Through prompt and joint action, these challenges can be addressed for global good while creating significant business and investment opportunities. At the same time, failure to address these issues will make it increasingly difficult for companies to deliver the returns expected by their investors, for investors to deliver the returns expected by their shareholders, and for governments to deliver on their commitments.
To tackle these challenges, forum participants agreed:
– To increase their combined impact to achieve stronger global investment markets.
– To maximize financing for sustainable projects, to strengthen coordination among investors, and global, regional and national policymakers and regulators by better aligning private and government-led investment strategies, impact can be increased and the pursuit of short- and long-term returns can be better balanced.
– To adopt shared principles and standards of transparency and sustainability for private investment and development finance. They also agreed that financial markets have the potential to be engines for innovation and entrepreneurship that promote economic growth, resilience, stability, and financial sustainability.
The forum produced the Buenos Aires Call to Action in which institutional investors call on governments, regulators, development finance institutions, credit rating agencies and companies to work collectively and collaboratively with institutional investors on sustainable long-term investments through the following actions in the area of sustainable long-term investing,
Action 1: states encourage national and international regulators and supervisors of banking, insurance, securities and pension funds to work together with the private sector to clarify that fiduciary duty is not inconsistent with the material environmental, social and governance factors, and promote their integration within investment processes.
Action 2: address regulatory and reporting constraints that could limit advancement of long-term, sustainable investing. For example, by adjusting capital charges to actual asset risk profiles and rationalizing core ESG disclosures, including consolidating existing ESG disclosure standards, and promoting their use and incorporation into accounting norms.
Action 3: incentivize sustainable, long-term investing by requiring asset owners, asset managers, investment consultants and other intermediaries to disclose their long-term sustainability policies, and by asset owners and asset managers, aligning their long-term value-creating goals, including through long-term mandates.
Action 4: for investors, seeking positive financial and non-financial outcomes and with the support of policymakers and other stakeholders, define the impact investing market and adopt harmonized operating principles and practices in the area of investing in infrastructure.
Action 5: says scale up resources allocated to defining and preparing sustainable, bankable infrastructure programs and projects. In particular, through multilateral and national facilities that emphasize standard approaches to project preparation and structuring.
Action 6: address data gaps that impede development of sustainable infrastructure as an asset class, expand efforts by governments, development finance institutions and international organizations to scale and effectively utilize capital markets and co-investment platforms for private investors and develop local financial ecosystems conducive to infrastructure finance by international and local investors.
Action 7: boost collaboration between investors, governments and development finance institutions to develop political risk insurance and expanded use of private insurance and re-insurance markets, strengthen dialogue between these parties to enhance existing and determine new mechanisms to mitigate political, foreign currency and regulatory risk.
The investor forum demonstrated the importance of bringing the supply side of global finance represented by large institutional investors located mostly in advanced economies into conversations with the G20 that focused on sustainable development. Dialogue with G20 governments and international financial institutions will enable these investment leaders to emphasize potential of what could be achieved through their participation, and to identify specific opportunities for the way forward.
A second high-level investment forum hosted by the World Bank group and the government of Chile will take place in Santiago on November 15th, 2019 in the lead up to the APEC leaders’ summit. This forum will build upon the first held in Buenos Aires to engage institutional investors again alongside policymakers and regulators to move these discussions to the next level. It will seek to identify policy actions, instruments and partnerships to expand global markets for sustainable, long-term investing led by the private sector. Going forward, direct involvement, buy-in, and articulation of views from global investment leaders will be critical for successful implementation of the sustainable development goals.
To conclude, these investor forums are an important first step for institutional investors to engage policymakers and regulators towards crowding in the private sector investments that will be fundamental to speed up inclusive and sustainable economic growth to improve the lives of billions across the world, and to achieve the sustainable development goals by 2030.
I would like to encourage the course participants to fully embrace the Buenos Aires Call to Action, and the goals of long-term sustainable investing by seeking ways to embed ESG practices and the principles of long-term sustainable investing into their portfolios. If we all work together on this, we will have a far better chance of tackling the critical global challenges that we are facing.
