Global Investors for Sustainable Development Alliance

Incentives of institutional investors: asset owners and asset managers

The financing needs of infrastructure are on average over 20 years. In addition, without a long-term perspective, certain risks, such as climate risks, will not be priced into decision-making. There is a pressing need to ‘shift’ incentives and remove barriers across the financial and corporate ecosystem for successful sustainable development investment.  

Institutional investors have been looked to as a potential source of financing for sustainable development, both because of size of assets under management, and because of long-term liabilities of some investors. Around $80 trillion in institutional investor assets is held by ‘primary’ institutional investors, such as pension funds, insurance companies, and sovereign wealth funds, with long-duration liabilities.  Shifting a small amount of institutional investor assets (3-5%) from private investments (or corporations investing profits in long-term projects) to long-term investment in sustainable development could have a large impact.

However, impediments to long-term investment in sustainable development by institutional investors may include a range of factors including risk perceptions, capacity constraints, the interactions between asset owners and asset managers, the measurement of performance and regulatory constraints.

GISD is working to explore solutions to unblock some of the significant constraints, including through focusing on incentives to encourage longer-term sustainability-oriented behaviour across the investment chain.