Remarks by Angel Gurría, Secretary-General of the OECD, Moscow, 19 July 2013.
G20 Finance Ministers and Central Bank Governors. Session 3 – Financing for Investment
Ladies and gentleman,
In spite an abundance of liquidity, significant difficulties remain in accessing long-term finance for investment. Traditional sources of long term investment financing -starting with standard banking project finance - are all facing challenges - including financial regulation and fiscal constraints.
As a result, policy makers are on the look-out for alternative sources of finance, such as pension funds, insurers and Sovereign Wealth Funds (SWF):
- Certainly, there is a huge potential out there. They represent USD 80 trillion in assets that could be invested in infrastructure, company equipment, new technology and firms.
- However, while these institutions are often referred to as natural "long-term investors", their potential remains largely untapped. Take for instance infrastructure: they account for less 1% of their asset allocation.
Hence the rationale behind High-Level Principles on Long-Term Investment Financing by Institutional Investors - which the OECD is now delivering to you. Let me start by saying a quick word about the process that led to their elaboration: they have been crafted by the OECD Task Force on Institutional Investors and Long-Term Financing, currently chaired by the Australian Treasury. The Taskforce is open to OECD, G20, FSB, and APEC members. They benefited from extensive comments from G20 policymakers and went through an inclusive public consultation with relevant stakeholders, starting with the pension funds and insurance associations.
Let’s now turn to the principles themselves: they present a comprehensive picture of the many different policy areas that need to be addressed in order to promote long-term investment financing by institutional investors. In particular,
- They identify the so-called “enabling environment” for long-term investment such as favourable business and investment climate, stable macroeconomic conditions or regulatory stability.
- They set out the kind of effective policies that are conducive to the mobilisation of long-term savings;
- They call for strengthened governance of institutional investors – that is critical to providing the right incentives for the adoption of a long-term investment perspective and managing long-term - and often illiquid - assets;
- And they set out basic objectives for tax and financial regulation, such as funding requirements or valuation rules, to avoid procyclical investment strategies;
What might be the ways forward now? These principles would now need to be complemented with more practical guidance. Thus the OECD is engaged in follow-up work to develop effective approaches for implementing the principles – for instance in the realm of Investment in Clean Energy Infrastructure – and stands ready to continue contributing to the G20 agenda by supporting the G20 Study group on Financing for Investment.
Finally, we wish to congratulate the Russian authorities for focusing on these issues as a priority of their G20 presidency. Thank you.
Institutional investors and long-term investment