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Sustainable Economy in 2040: A Roadmap for Capital Markets is a report by Forum for the Future funded by Aviva Investors. It shows investors how they can help create a resilient, stable and sustainable economy by investing wisely and using their power to shape the development of capital markets.

Creating a sustainable economy will require a fundamental shift in the way that the financial markets allocate capital. Forum for the Future has identified 10 areas as priorities for action by investors, companies and government:

1. Investors should require all companies to report on their long-term strategy and how it makes the business more sustainable. It should demonstrate that they have a plan to address the impacts of future systemic risks including climate change, water stress, biodiversity, population growth, urbanisation and changing demographics.

2. Companies should report in their accounts the value of natural, human and social capital, so that investors can understand the importance of factors which are often overlooked. This will enable the strategic reporting outlined in (1) above. For example, food manufacturers should report on how they depend on the availability of water and fertile soil, and what they are doing to protect these assets. All companies should report on the value added to the business through effective management and training of staff and support for innovation. And companies should report on how the business depends on, and protects, relationships with customers and local communities. Where these data are not available, companies should set up pilot projects.

3. Financial institutions should demonstrate that the financial products and services they offer to meet the need for liquidity in the market also serve the long-term public good. In particular, they should demonstrate that they do not increase risk and instability in the system. This may require mandatory reporting.

4. Progressive fund managers should develop funds that invest in companies aligned to the vision of a sustainable economy. These funds should be designed to become increasingly resource-efficient and less carbon-intensive over time, as companies shift their business models or the fund moves investment to favour sustainability leaders. The government should offer tax incentives to these funds: this would require a reassignment of existing pension subsidies but no new spending.

5. Pension funds should ensure that all investment mandates require fund managers to take social and environmental issues into account as part of their fiduciary duty. They should set up an independent process to judge how well fund managers do this when making decisions on investments.

6. Companies (within and outside the capital markets) should change their remuneration systems so that they reward staff for performance on activities which build long-term value, such as innovation, efficiency and customer satisfaction, rather than for generating short-term financial returns.

7. Insurance companies should charge higher premiums for activities that create systemic risk by contributing to climate change, the depletion of natural resources, and social instability. This may need government support initially.

8. Financial institutions should develop and scale up financial instruments designed to fund long-term sustainable activities, such as bonds.

9. Government and other public-sector bodies should set up institutions and mechanisms which will catalyse private-sector investment into sustainable activities, where the current risk-reward profile is not attractive or there are particular political, technical or market risks. This will follow the model of the development finance institutions (for investment in the poorest developing countries) and the proposed UK Green Investment Bank (for investment in clean technologies). Additional areas for focus are agriculture, small businesses and forest protection.

10. The public and private sectors should engage in more effective dialogue about how to build a sustainable economy to enable better sharing of perspectives, skills and knowledge.