While the world has around $80 trillion in assets held by pension funds, insurance companies and other institutional investors, majority of it is invested short-term, posing a challenge to promote global development, says the United Nations.
According to the report Financing for Development: Progress and Prospects, the current system rewards investors, financiers and project managers who prioritize short-term profits than more important, though long-term priorities.
This, for instance, leads to infrastructure projects in favour of short term priorities in the form of liquid assets, such as listed equities and bonds in developed countries.
While infrastructure still represents less than three per cent of pension fund assets, investment in sustainable infrastructure in developing countries is even lower.
“The world has the resources to deliver, but they are not allocated where they are needed most,” said Secretary-General António Guterres in the foreword to the report.
Improper allocation of funds also mean that major risks, such as those from climate change, are not incorporated into decision-making, the report 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,” said Liu Zhenmin, Under-Secretary-General for the UN Department of Economic and Social Affairs.