Publication Tomorrow’s Capital Markets: Investing in what we value

Executive Summary

This report brings to a formal conclusion the research by Tomorrow’s Company which began in 2010. A first report Tomorrow’s Capital Markets: an invitation to work with Tomorrow’s Company to set new incentive structures for a sustainable world published in 2012 set out an agenda for change and recognised that change needs to be created and owned by those in the system and those who are responsible for the system.

This second report has moved beyond the diagnosis to test and refine the findings of the first report and set out an agenda for change and recognised that change needs to be created and owned by those in the system and those who are responsible for the system. The report focuses on the UK, and to a lesser extent the EU. However, many of the principles behind the findings are just as applicable in other regions.

Tomorrow’s Company’s vision for the system is one in which long-term financial value is understood as meeting human needs on an intergenerational basis, takes account of economic, social and environmental factors, and is measured using a broad range of indicators.

The report argues that:

• We face serious threats to climate, quality of life, water supply, nutrition etc.
• Our capital markets have a vital part to play in enabling society to meet these human needs.
• Long-term financial value comes from meeting human needs on an intergenerational basis, taking account of economic, social and environmental factors, using a broad range of indicators.
• This wider view of value needs to permeate all information and decisions in the system.
• Markets are good servants but bad masters: we need to curb the casino economy and shift the balance in markets between trading and owning – between ‘value in use’ and ‘value in exchange’.
• Markets will respond to client priorities. We want asset owners to take a wider view of value embed this view into their requirements of investment managers and advisors. We also want to help savers exercise individual choice.

This is achieved by ensuring that:

• A wider view of value is adopted and reflected in the information provided to support decision making.
• Savings are channelled into investments which create wealth and secure well-being.
• Strong investment performance is pursued over the long-term through a focus on stewardship, underpinned by collaboration and standards of integrity and transparency, and all the intermediaries in the system publicly declare the extent of their commitment to act in this way and explain how they fulfil these obligations.
• Long-term value creation is reinforced through aligning skills and linking targets and incentives to the needs of clients and beneficiaries
• There is an appropriate balance between long-term investments and the need for liquidity
• The scale and activity of what some refer to as the ‘casino’ economy does not pose a threat to the operation of the ‘real’ economy, while recognising the need for sufficient, but not excessive, trading to enable the real economy to operate effectively.