OECD Business and Finance Outlook 2019 by OECD

Author:OECD
Language: eng
Format: epub
Tags: finance
Publisher: OECD Publishing
Published: 2019-09-09T00:00:00+00:00

Promoting common and widespread expectations

A lack of common expectations is also an obstacle to more widespread adoption of responsible investment strategies by institutional investors. A survey conducted in 2016-2017 with investment executives at 475 institutions found that over half of institutional investors implementing some form of responsible investment strategy felt there was a lack of clarity around standards and terminology (State Street Global Advisors, 2018). A lack of standardisation allows investors broad flexibility to design and implement their own approaches. However, this ambiguity also creates challenges to benchmarking performance with respect to environmental and social factors and heightens the risk of “green-washing”, which can diminish the credibility of responsible investment strategies and their potential for trust-building.

Developing and recognising common standards with respect to responsible investment can promote quality processes and enhance its potential for trust building. It could also provide a common reference point or baseline of expectations for institutional investors and mitigate the risk of a multiplication of varying expectations across jurisdictions and initiatives.

In this respect the OECD due diligence framework may serve as reference points for policy makers. In 2017, the OECD articulated key considerations for institutional investors in carrying out due diligence to identify and respond to environmental and social risks, within their portfolios. This publication was developed with the support of leading asset owners and investment managers and has been formally endorsed by 48 governments (OECD, 2017). The European Union recently reached agreement on an EU Regulation for Sustainable Investor Disclosure. Once implemented, this regulation will call on financial market participants and financial advisors to integrate consideration of ESG risks and opportunities in their processes and to report on their due diligence policies. The regulation also encourages financial market participants to take into account due diligence guidance for responsible business conduct developed by the OECD (OECD, 2018e).

By promoting common expectations on responsible investment, policy makers can help to level the playing field and encourage industry laggards to perform better. In this respect, policy makers can build on and promote existing recognised standards to foster a common understanding of responsible investment.

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