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Financial Reform, Institutional Investors and Sustainable Development
A review of current policy initiatives and proposals for further progress

Working Paper

Authors: Nick Robins    Rob Lake   

Published By: UNEP Inquiry    CalPERS    Principles for Responsible Investment    UNEP Finance Initiative   

Date: Sep 2015

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Financial Reform, Institutional Investors and Sustainable Development

To date interventions to promote the environmental and social dimension of investment have focused principally on disclosure of policies and formal statements of legal duties. They have largely taken fundamental features of the design and operation of the financial system as given. This paper makes the case for a more systemic and dynamic approach. It argues that policy innovations are needed to support existing market initiatives and fill the gap where markets will not deliver solutions. It identifies seven critical policy objectives:

  1. Aligning institutional investment system design with sustainability
  2. Removing policy barriers
  3. Stimulating demand for investment that integrates sustainability
  4. Strengthening asset owner governance and capabilities
  5. Lengthening investment horizons
  6. Aligning incentives along the investment chain
  7. Ensuring investor accountability

It identies fourteen policy tools to deliver positive change:

  1. The design of pension systems
  2. Investment performance measurement
  3. The legal duties of investment institutions
  4. The legal duties of the directors of risk-taking financial institutions
  5. Solvency and risk regulations
  6. Prudential regulation
  7. Investor disclosure rules
  8. Corporate disclosure rules
  9. Fiscal incentives
  10. Rules on equity and credit research
  11. Investor rights, codes and stewardship
  12. Risk mitigation and market development for green assets
  13. Soft law sustainability frameworks
  14. Professional qualifications and knowledge transfer
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