Global institutional investors working with OECD to formulate long-term investment principles

Some of the world’s leading institutional investors are helping to formulate a set of high-level principles on long-term investment that is being developed by the Organisation for Economic Cooperation and Development (OECD) and the Group of 20 (G20) club of leading nations.

They convened at a meeting at the OECD in Paris yesterday to discuss the eight draft principles, which will be presented at the G20 Summit in Saint Petersburg, Russia, in September.

Investors present at the meeting included senior representatives from the Netherlands’ APG, France’s Caisse des Depots, Norges Bank Investment Management, Italy’s Cassa Depositi e Prestiti, PensionDanmark, the Canada Pension Plan Investment Board, the Government of Singapore Government Investment Corporation (GIC), insurer MetLife and funds giants BlackRock and Allianz Global Investors. The meeting also featured respected economist John Kay, the author of a recent UK government-backed report on equity markets and long-term decision-making.

Under discussion at the invitation-only event was a “work in progress” set of non-binding principles whose public consultation period ended last week.

The wide-ranging, 10-page document is intended to provide a framework for how institutions such as pension funds, insurers, sovereign wealth funds, mutual funds and endowments can address climate change financing, act as market “shock absorbers” and provide a more diversified source of long-term financing across all sectors in the economy.

The next step is for the G20 Finance Ministers and Central Bank governors to discuss the final draft of the principles at a July 18-19 meeting before the final report goes to the G20 summit on September 5-6. The OECD has set up a task force to help facilitate the project.Among the ideas presented in the draft principles:

• Institutional investors should follow the prudent person principle.
• Governments should issue appropriate long-term instruments to help long-termism.
• Investors should “identify, measure, monitor and manage” ESG risks.
• Fund managers’ performance should be evaluated over a “period of years” (and their pay “based on long-term criteria”).
• “Excessive or mechanistic” reliance on external information providers (such as credit rating agencies) should be avoided.
• Pooled vehicles should be considered to channel long-term financing.
• “Collaborative strategies and resource pooling” amongst institutions should be encouraged.
• “An international information platform” to allow investors to compare long-term investment projects.
• Institutions should disclose how their investments are “in line with their investment horizon”.

The draft principles:
1. Preconditions for long-term investments
2. Development of institutional investors and long-term savings
3. Governance of institutional investors, remuneration and asset management delegation
4. Prudential regulation, valuation and tax treatment
5. Financing vehicles and support for long-term investment and collaboration
6. Investment restrictions
7. Information sharing and disclosure.
8. Financial education, awareness and consumer protection.