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UN Study Calls For Proactive Policies And Institutional Investment Frameworks

A new UN study has called on regulators to implement proactive policies that build institutional investment frameworks.

The study, released only days ahead of a summit to adopt the Sustainable Development Goals (SDGs), was produced by the United Nations Environment Programme Inquiry into the Design of a Sustainable Financial System (UNEP Inquiry) and the California Public Employees’ Retirement System (CalPERS).

The United Nations Sustainable Development Summit is set to be held later this month, from the 25th to the 27th of September, and is focused on “the adoption of the post-2015 development agenda.” More than 150 world leaders are expected at the event, to be held at the UN headquarters in New York, in the hopes of formally adopting the new sustainable development agenda — described in this UN General Assembly document.

The release of the joint UNEP/CalPERS study comes as no surprise, then, given the proximity of the Summit, and given the foremost conclusion from the report — that “Policy reform is critical for aligning institutional investors with sustainable development.” Specifically, the authors of the report believe that “relying on voluntary action and enlightened self-interest by investors will not be sufficient to achieve sustainability goals.”

The UNEP, in its press release accompanying the publication of the studyFinancial Reform, Institutional Investors and Sustainable Development: A review of current policy initiatives and proposals for further progress, notes that the global financial system — which is worth more than $300 trillion — “has the potential to transform the international economic landscape to better serve the needs of humanity.”

“A package of measures is needed to deliver the full sustainability potential of institutional investors,” said Nick Robins, Co-Director, UNEP Inquiry. “Disclosure is important, but without effective governance frameworks and incentives, this will not drive sufficient change.”

Graph With Stacks Of CoinsThe report makes four additional key messages, which themselves go a long way to providing important and vital steps forward:

  • Sustainability demands a systemic, dynamic policy approach
  • Interventions focusing on sustainability and investment intersect with other pressing policy objectives
  • Seven critical policy objectives hold the strongest potential for positive change
    • aligning institutional investment system design with sustainability
    • removing policy barriers
    • stimulating demand for investment that integrates sustainability
    • strengthening asset owner governance and capabilities
    • lengthening investment horizons
    • aligning incentives along the investment chain
    • ensuring investor accountability
  • Fourteen policy tools can help get us there
    • the design of pension systems
    • investment performance measurement
    • the legal duties of investment institutions
    • the legal duties of the directors of risk-taking financial institutions
    • solvency and risk regulations
    • prudential regulation
    • investor disclosure rules
    • corporate disclosure rules
    • fiscal incentives
    • rules on equity and credit research
    • investor rights, codes and stewardship
    • risk mitigation and market development for green assets
    • soft law sustainability frameworks
    • professional qualifications and knowledge transfer

The full report is available here (PDF) and further details the above seven and fourteen dot-points.

Image Credit: via UNEP

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