Countries with big pension funds and insurance firms should ease investment regulations so more institutional investment capital can be used to help sustainable development in developing countries, according to the Organisation for Economic Co-operation and Development (OECD).
In a new report entitled: “Mobilising institutional investors for sustainable development in developing countries: emerging evidence of opportunities and challenges”, the international organisation has made a series of recommendations.
The first is worded: “Countries hosting large pension funds and insurance companies have a role to play in introducing greater flexibility in investment regulations and removing the micro and macro-economic barriers – including the lack of transparency and information asymmetry on private investment – to unlock institutional assets at the global level and towards developing countries more specifically.”
The report, which describes the volumes and allocation of institutional investors’ portfolios globally as well as trends, analyses the share and main characteristics of their assets held in developing countries.
It also describes the main investment drivers and considerations of these players when operating in developing countries, and looks at the potential of blended finance to unlock institutional investment for financing sustainable development in developing countries, according to the OECD’s announcement of the study’s launch.
In the report’s second main recommendation, the OECD said that while the scaling-up of institutional asset allocation towards developing countries had to be encouraged, ensuring their sustainability through impact investment policies was just as important for the achievement of the UN Sustainable Development Goals.
It advised “aligning the financial system – banking, capital markets and insurance – with sustainable development pathways requires the involvement of all actors, including international financial institutions, banks, institutional investors, market-makers such as rating agencies and stock exchanges, as well as central banks and financial regulatory authorities.”
The OECD also said in the recommendations that blended finance could de-risk deals and enhance returns to crowd in capital from local or international institutional investors, but that incentives from development finance providers were also needed to mobilise these actors at scale.
“This includes efforts for aggregating multiple projects – e.g. through portfolio investment mechanism – to help achieve the needed investment ticket sizes, as well as to contribute to portfolio diversification for institutional investors”.
More transparency of institutional investors’ asset distribution was critical for building trust in the markets, and so unlocking financing towards developing countries, the OECD said in the report.
“Transparency does not only build trust in the international development system, but it is also an important source of learning opportunities and inputs needed for evidence-based policies and informed partnerships for the SDGs,” the organisation said.