Major summits point to clearer direction for global economy

In the immediate aftermath of the Global Financial Crisis, the expectation was that globalization would give way to a new era of protectionism and introspection, as Governments grappled with the civil and economic chaos caused by the first universal meltdown of its kind. The farsighted decision in 2009 to elevate the G20 to the status of global coordinator of economic policymaking helped both to stabilise capital markets and underpin the global institutions that are today attempting to drive more intelligent information-sharing and regulatory action to build resilience in an era of unprecedented connectivity and volatility.

Critically, the G20 gave a voice to economies that contributed over 50% to global growth between 2009 and 2012. BRICS, shorthand for Brazil, Russia, India, China and South Africa, account for 46% of the world’s population.

So it was by happy coincidence that in mid-July the 6^th Annual BRICS Leaders’ Summit was held in Foraleza, Brazil, at exactly the same time that over 400 business leaders met for the B20 Summit in Sydney with the goal to prioritise recommendations to G20 leaders’ meeting in November.

The two Summits – although over 8,000 miles apart – struck a strikingly similar tone. There was a focus on practical, actionable solutions that would have an impact not just today, but over the medium and long-term too. The unifying theme of both summits was infrastructure financing – a vital issue for the future competitiveness of the global economy.

New Development Bank to finance infrastructure

What is clear from the BRICS Summit is that these countries increasingly feel at ease speaking with one voice and share a unity of purpose in areas such as trade, sustainable development and infrastructure finance. The news from the Summit is the creation of a New Development Bank (NDB) with initial authorised capital of $100 billion, which will make it one of the largest multilateral financial development institutions in the world. The Shanghai-based NDB, with India providing its first leader, will fund infrastructure projects with a focus on sustainable development, and will fast become a major source of financial capital in the developing world.

Some commentators have suggested that the NDB will become a “challenge” to the established Bretton Woods institutions of the World Bank and International Monetary Fund. I prefer to look at it differently, and believe the NDB could succeed in filling a gap in the current financial architecture – complementing, rather than competing with, existing institutions. Indeed, Christine Lagarde, Managing Director of the IMF, welcomed the fact that the “international safety net” has been expanded through the creation of the NDB and an accompanying Contingent Reserve Arrangement (CRA). In many ways the move is consistent with the “new multilateralism” envisaged by M Lagarde in her Dimbleby Lecture earlier this year.

From the IIRC’s perspective, the creation of another significant long-term investor, with its focus on infrastructure and sustainable development, is incredibly welcome and I want to signal today my intention to work with the leadership of the NDB to provide them with advice and support as they develop their reporting and accountability systems, which we know have such an impact on the quality of decision-making and capital allocation.

Practical solutions

The B20 Summit in Sydney produced 20 recommendations, which were developed to meet four broad objectives: (a) structural flexibility; (b) free movement of goods, services, labour and capital across borders; (c) consistent regulation; and (d) integrity and credibility in commerce. Richard Goyder, chair of B20 and CEO of Wesfarmers, said that delivery by Governments was now critical. If the G20 adopts the recommendations, which focus on trade, human capital, infrastructure investment and financing growth, then businesses would risk their investors’ capital to create up to 150m jobs and accelerate economic growth by up to $5.5 trillion, he said.

Among the recommendations are proposals to accelerate infrastructure investment by ensuring projects are “prioritised according to the value they create” and that relevant data and reports are produced that promote transparency. The B20 references the accountancy networks paper on unlocking infrastructure investment, which called on G20 Governments to encourage corporate reporting innovations, such as Integrated Reporting. The B20 supports work by the IASB to examine whether there are any barriers to long-term and infrastructure investment in the accounting standards.

I was also pleased that the B20 urged the removal of unnecessary regulatory disincentives to long-term investment, a better alignment between risk and return and “adequate disclosure and reporting rules” to support a longer-term focus.

The IIRC continues to urge Governments to step back and first consider whether there are any corporate reporting barriers to long-term investment and to encourage innovations to address information gaps and support longer-term investment decisions. We are ready to work within the formal processes, and specifically with the regulatory community, to provide greater support in uncovering the barriers to better quality corporate reporting that would help to achieve the goals set out in the B20 recommendations.

Conclusion

We receive almost daily reminders of the “new normal” environment of extreme volatility and unpredictability. In early July, Singapore posted negative GDP numbers for the second quarter, which highlights the risks inherent in the global economy today. For me, it is also a reminder of that old maxim, “what gets measured, gets managed”. For Governments, it is possible that a broader measure of societal and economic progress could lead to better stewardship of resources and enable better quality decision-making. For businesses operating in this volatile climate, the best insurance policy is to adopt Integrated Reporting, which underpins and enhances the quality of the data set to create a more resilient basis for decision-making within the business and by investors.

I began this article by reviewing two major summits. The year will conclude with a trio of economic meetings – China will host APEC, followed by the East Asia Summit and the G20 Leaders’ meeting in Australia. I hope these meetings will produce cohesive outcomes:

(a) Asserting the need for new global systems and processes to attract inward investment – international formats to attract investment, with local models of adoption;

(b) A focus on policies and behaviours that promote trust and integrity – vital for the sustainability of our economic model;

(d) A greater focus on micro-economic factors that will achieve long-term growth allied to development – e.g. productivity and skills.

From each of the global decision-making bodies, I sense that a clearer direction is emerging with less fragmented and more cohesive goals. What is changing is the emergence of practical solutions based on an honest reappraisal of relative economic power and influence – between nations and actors in the economy and society. The result should be a system that unlocks vital resources to meet the needs of the current and next generations without compromising the needs of generations to come.