By Judith Ugwumadu | 9 September 2013

The Group of Twenty leading nations has backed an initiative to boost the flow of institutional investment towards infrastructure, renewable energy projects, and other long-term assets to improve the global economy.

Guidance developed by the Organization for Economic Cooperation and Development, at the request of the G20 states, sets out a list of preconditions for long-term investments, such as stable macroeconomic conditions, a clear and transparent government plan for projects and opportunities for private sector involvement.

The high-level principles of long-term investment financing by institutional investors document also addresses specific policies. Among them are ways to: better incentivise higher levels of long-term savings; strengthen the governance of institutional investors; and ensure tax and regulatory frameworks properly reflect investment risk characteristics and promote long-term approaches.

Angel Gurría, OECD secretary-general, said the fall-out from financial crisis has exposed the limitations of relying on traditional sources of long-term investment finance such as banks.

‘Governments are looking for other sources of funds to support the long-term projects that are essential to a sustaining a dynamic economy,’ he continued.

Currently, pension funds, insurers, mutual funds and sovereign wealth funds hold over $80 trillion (£50.8trn) in assets. Pension funds alone managed over $20trn ($12.7trn) in 2012, while only 1% of those assets were invested in infrastructure projects, with a smaller fraction in clean energy projects.

‘There is huge potential among institutional investors to support development in a range of areas such as infrastructure, new technology and small businesses,’ said Gurría.