A major report released in advance of the G20 and World
Bank/IMF Spring Meetings has revealed that short-termism impedes progress of
hundreds of millions of people, reports ITRealms.
According to the reports, the
prospects of around 800 million of the world’s poorest people remain dire.
The global economy, the UN report
hinted, is experiencing a moderate upturn, and momentum around sustainable
investing is growing.
But the vast majority of investment
is still short-term oriented and commitments by the international community to
create sustainable economies are not being met.
ITRealms
gathered that there is an increasing
interest in socially responsible investing, but that is no substitute for a
broader transformation in the financial system.
Just as the report states that the current system rewards investors, financiers
and project managers that prioritize short-term profits. Similarly, policy
makers are excessively focused on short-term considerations. But there is a
price to pay. Infrastructure projects are shelved in favour of short term
priorities. Small businesses and women remain excluded from the financial
system.
LIU Zhenmin, Under-Secretary-General
for the United Nations Department of Economic and Social Affairs said, “The
good economic news in some regions masks the very real risk that the poorest
will be left behind, There is no room for complacency.”
“If we don’t invest in
infrastructure projects like bridges, roads and sewage systems, if the poorest
and women are cut off from access to credit and other financial services, we
have little prospect of achieving our global goals,” he added.
Per capita growth remains negative
or insignificant in many countries where the poverty rate is already high,
entrenching inequality.
Overcoming the short-term outlook of
many investors is a complex but urgent issue, according to “Financing for
Development: Progress and Prospects,” the 2018 comprehensive annual progress
report on how to finance the Sustainable Development Goals.
Pension funds, insurance companies
and other institutional investors hold around $80 trillion in assets. But the
majority of their resources are invested in liquid assets, such as listed
equities and bonds in developed countries. Investment in infrastructure
still represents less than 3 per cent of pension fund assets, with investment
in sustainable infrastructure in developing countries even lower.
The lack of long-term investment
horizons also means that major risks, such as those from climate change, are
not incorporated into decision-making.
According to the report, the
solution lies in a multifaceted approach. It includes changing payment
practices: the compensation of financial advisors and portfolio managers is too
often linked to short term results. More transparency also helps: some countries
now require all listed companies to disclose financial risks they face from
climate change.
Short-sighted policies also result
in a lack of access to finance for countries in urgent need. Support for
countries affected by disasters is often too little, too late. Innovative
financial instruments exist that provide quicker access to funding. Countries
can set up insurance-like mechanisms, and the international community can
support those that can’t afford premiums. Loans can be set up to reduce
repayments automatically during crises. But so far, major funders have not
taken up these promising tools.
“We have to reach beyond the quick
fix if we are going to create a world that can sustain all of us,” said Navid
Hanif, Director of Financing for Sustainable Development Office. “Political
leadership and public policies are indispensable.”
It takes leadership to overcome
short-term political cycles, devise and enforce rules which have widespread
benefits but may face resistance by powerful groups, for example tax reforms
and stopping illicit financial flows, the report notes.
The report emphasizes that in donor
countries, political leaders must do more to meet their commitment to provide
financial assistance to the world’s most vulnerable countries.
Chuks Egbune/GEE
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