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Sustainable capital markets
As the asset management arm of a life, pensions, savings, health care and general insurance business, the very nature of our business at Aviva Investors is focused on the long term.
However, we have concerns about the structure of capital markets today. Fund managers have little incentive to take a longer-term view on their investments and this, we believe, may lead companies to shorten their strategic horizons.
Capital markets can bring many positive societal benefits. They can help to provide for our education, food, energy, health care and housing; they can allocate capital to innovative research and development projects; and they can help to ensure that our economy continually improves in efficiency and effectiveness. However, we believe the capital markets are not currently structured in a way that encourages these long-term gains. Put simply, we are not meeting the needs of the present generation without encumbering the ability of future generations to meet their own needs.
Our drive for responsible investment, better disclosure, greater transparency and Sustainable Stock Exchanges is a key part of our goal to be responsible and trusted as a leading asset manager, and to create more sustainable capital markets.
Towards better governance and a more sustainable economic recovery
As part of Aviva Investors’ drive for greater sustainability, Paul Abberley, chief executive Aviva Investors London, has written about the linkage between capital markets and long-term economic sustainability:
“The crisis that engulfed financial markets and the real economy is showing signs of easing. Official figures suggest that the US, Germany and France have all come out of recession.
We have arrived at a promontory from which to survey the events leading up to the crisis and see how the financial system can be made more robust and capable of sustaining growth and returns on a long-term basis.
It is our opinion that one of the underlying causes of the financial crisis was that too many market participants focused on short-term profits, short-term incentives and looked only so far as the next quarterly earnings, at the expense of paying attention to the longer-term fault-lines that were emerging.
A key reason for this was that much of the information available to investors – on executive pay, the environmental and social impact of a company and financial structuring and business practices – was itself short-term and inadequate. It was challenging for investors to assess with any accuracy which companies were suitable candidates for their investment, and which would provide them with the best long-term returns. This lack of information eventually impacted on the whole market.
More effort has recently been made to improve information flow to investors and encourage companies to improve their transparency. For example, membership of the UN Global Compact has grown from an initial base of 47 companies a decade ago to 6,000 member companies in 135 countries today. Membership of the UN Global Compact demonstrates to investors that a company complies with best practices around human rights, the environment, labour practices and anti-corruption.
But more is needed to encourage companies to adopt sustainable, long-term-oriented business practices and to provide this information to investors.”
Related links
- The Guardian online – A more recent article, featured in The Guardian, 4 February 2011
