The more internal firm and industry-level challenges to unlocking private investment for sustainable development are complemented by hurdles imposed by policies and regulations, which need to be navigated. In the case of institutional investors, these include narrowly interpreted fiduciary duties, mark-to-market accounting and quarterly reporting cycles and the impact of Solvency II regulation in the European Union. Likewise, Basel III raises the cost for commercial banks of lending for infrastructure and SMEs, while a lack of harmonized and impact-oriented reporting, disclosure and listing standards constrains the alignment of capital market actors to sustainable development. Meanwhile, corporations in certain economies are faced with regulatory and tax policies that incentivize the focus on shareholder value.
Other actionable solutions for increasing the supply of long-term investment for sustainable development may include:
- Appropriate pricing of externalities, such as carbon emission, by policymakers to incentivize more sustainable business practices and create a level-playing field among companies.
- Revisiting existing accounting standards to promote long-termism.
- Recalibrating financial reporting systems to introduce greater long-term focus (e.g. introduce bifurcated and rolling reporting systems) to better support the SDGs.
- Introducing long-term performance metrics into the deliberations of corporate boards, as well as into incentive structures for CEOs and corporate management.
- Reviewing regulatory frameworks, such as capital requirements, for SDG-aligned investments.