ISLAMABAD: In a report released ahead of the G20 and the spring meetings of the World Bank and IMF, the United Nations has warned that prospects for around 800 million of the world’s poorest people remain dire.
The global economy 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, according to “Financing for Development: Progress and Prospects,” the 2018 comprehensive annual progress report on how to finance the Sustainable Development Goals.
There is an increasing interest in socially responsible investing, but that is no substitute for a broader transformation in the financial system. The report states that the current system rewards investors, financiers and project managers that prioritise 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.
“The good economic news in some regions masks the very real risk that the poorest will be left behind,” said Liu Zhenmin, Under-Secretary-General for the United Nations Department of Economic and Social Affairs. “There is no room for complacency,” he said.
“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, the report says.
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 three per cent of pension fund assets, with investment in sustainable infrastructure in developing countries even lower, report estimates.
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.
Published in Dawn, April 15th, 2018