Convention on Biological Diversity

Multilateral Development Banks and International Financial Institutions

International Financial Architecture

The international financial architecture, the governance arrangements, includes:

(a) Governance of public international financial institutions, such as the multilateral development banks and the International Monetary Fund (IMF), as well as other international public development banks and global funds (such as the Green Climate Fund);
(b) Financial standard-setters that establish norms for the governance of private finance, such as the Financial Stability Board, the Bank for International Settlements, the International Organization of Securities Commissions, the International Accounting Standards Board and the Financial Action Task Force;
(c) Monetary arrangements, such as regional financial arrangements and the network of bilateral swap lines;
(d) Informal country groupings that act as norm-setters, such as the Group of Seven (G7) and Group of 20 (G20);
(e) Formal but non-universal norm-setting bodies, in particular the Organisation for Economic Co-operation and Development (OECD);
(f) Creditor groups that address sovereign debt issues, including the Paris Club, the London Club, the Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative, agreed by G20 and Paris Club countries, and the International Capital Market Association (a private entity that publishes model clauses for debt instruments), as well as global credit rating agencies;
(g) United Nations as a norm-setter and implementer.

Addis Ababa Action Agenda of the Third International Conference on Financing for Development

The 2022 Bridgetown Initiative: Urgent and Decisive Action Required for an Unprecedented Combination of Crises The 2022 Bridgetown Agenda for the Reform of the Global Financial Architecture, 23 September 2022

The Bridgetown Initiative was devised by a group steered by Barbadian Prime Minister Mia Mottley, and has advanced several suggestions:

The Board of the International Monetary Fund to re-channel at least US$100 billion of unused Special Drawing Rights (SDRs) to those who need it, and operationalise the Resilience and Sustainability Trust by October 2022;
MDB shareholders should implement the recommendations of the independent G-20 Capital Adequacy Frameworks Review by the end of 2022 and the World Bank and other MDBs must use remaining headroom, increased risk appetite, new guarantees and the holding of SDRs to expand lending to governments by US$1 trillion. New concessional lending should prioritise attaining the SDGs everywhere and building climate resilience in climate-vulnerable countries;
A global mechanism for raising reconstruction grants for any country just imperilled by a climate disaster, and a new issuance of 500 billion SDRs (US$650 billion) or other low-interest, long-term instruments to back a multilateral agency that accelerates private investment in the low carbon transition, wherever it is most effective.

Multilateral Development Banks vision statement, the Summit for a New Global Financing Pact, 23 June 2023

The Summit call upon MDBs to continue to play a key role to promote just transitions and foster sustainable development at the global level through increased financing, policy advice and technical assistance for the benefit of developing countries, particularly least developed and most vulnerable countries. To continue to evolve and meet 21st century challenges, almost 80 years after the Bretton Woods conference, MDBs should, through their respective Boards, aim to implement the following set of principles, to make the most of resources of the international financial system:

1. Adopt new ways of working together: (a). to work as a system, also in cooperation with regional and national development banks as well as UN agencies and philanthropies, forming the heart of a wider global financial architecture, based on comparative advantages, supported by civil society. Better articulating MDBs’ work with the IMF within their respective mandate, in particular in the context of the Resilience and Sustainability Trust (RST) financed arrangements and in line with the G20 recommendations for the use of policy-based lending. Support public and private investments in climate and nature-based solutions, and connecting them to development strategies of member countries, including through technical assistance and capacity building. (b). Deepen cooperation among and between MDBs and concessional windows and thematic funds to improve co-financing, facilitate countries’ ease of access to financing, streamline internal procedures, and achieve better leverage for LICs, MICs and Small Island Developing States. Optimise the climate finance architecture.
2. Activate all operating and financial optimization levers: (a). Give an additional push to the Capital Adequacy Framework Review agenda guided by the G20 roadmap on the implementation of the recommendations of the Capital Adequacy Framework with both short-term measures and a medium-term agenda, aiming to optimise the use of capital by MDBs and encourage them to pursue innovative measures. This should include exploring incorporating a prudent share of callable capital into MDB capital adequacy frameworks, diversifying their sources of funding (including by exploring issuance of hybrid capital), establishing innovative guarantee mechanisms, and providing enhanced data (from the Global Emerging Markets Risk Database Consortium or GEMs) to Credit Rating Agencies (CRAs) and private investors to enable better understanding of MDBs’ specific business models in their credit rating assessment models. Enhanced dialogue between MDBs and the CRAs could help refine CRA methodology to better account for MDBs strengths and attributes and for MDBs to reflect on their approach to risk. In addition, access to, and upgrading of GEMs data, giving a clear picture of credit risk, should also help enable additional international and local private investment for developing countries. (b). Following the implementation of all appropriate CAF recommendations to make the most efficient use of existing resources, capital increases for some MDBs, with its leverage effect too, could be considered. The Board of each MDB will be best placed to determine if and when new capital injections are needed in addition to these measures.
3. Focus multilateral finance on leveraging new instruments: (a). exploring viable options for enabling the voluntary channelling of Special Drawing Rights (SDRs) through MDBs, including the innovative mechanism designed by the AfDB and IDB, while respecting relevant legal frameworks and the need to preserve the reserve assets character and status of SDRs. (b). additional mobilization of resources at scale through private sector finance, including by expanding the use of innovative risk-sharing tools and platforms with a strong leverage effect, offering sounds policy and regulatory advice, providing project preparation, and improving execution capacity. MDBs and PDBs to work to improve the business environment and domestic resource mobilisation at country level, including through the G20 Compact with Africa, and to develop relevant and harmonized metrics for private capital mobilization and set quantified targets that reflect their ambition, while also establishing incentives for staff to mobilise international and local private capital. Blended finance instruments should be made more efficient and strengthened. International Development Association’s Private Sector Window. Enhanced use of MIGA’s insurance toolkit in coordination with the other risk sharing instruments in order to maximize their impacts.
4. Use concessional and low-cost finance where additionality and impact are greatest: (a). Preserve the focus of concessional finance on Low Income Countries (LICs). MDBs should keep focusing their concessional resources on LICs, in light of the recent increase in extreme poverty and of the high challenges that they face with limited resources. (b). Ensure an adequate level of concessional resources in development operations. The 2023 IDA mid-term review should aim to make sure that IDA can continue to adequately support eligible countries in FY 2024 and 2025 and over the medium-term. Ambitious IDA 21 replenishment next year as well as other replenishments of concessional windows and thematic funds such as the Green Climate Fund and the International Fund for Agricultural Development. Open the possibility for the African Development Fund to leverage donors’ contributions by accessing the market, when conditions will allow it, to provide much needed affordable resources to Low-income countries. (c). Explore eligibility to concessional finance for the most vulnerable countries with a multidimensional approach to vulnerability, encompassing economic, environmental and social dimensions. To facilitate cooperation, MDBs could explore a common definition of vulnerability, taking into account the United Nations workstream in that regard, and could develop common guidelines for the targeted use of concessional finance to address vulnerabilities. (d). MDBs to develop and present frameworks defining the potential cases for use of concessional and low-cost finance and non-financial instruments for addressing global challenges not at the expense of concessional finance for LICs. These frameworks should cover all possible incentives (loan volume and tenor, grant element, non-financial incentives), and be based on clear criteria and methodology for maximum impact of limited concessional resources, and help mobilize other PDBs and private finance.
5. Better integrate nature into the MDBs activities to drive delivery of the SDGs, Paris Agreement and Kunming-Montreal Global Biodiversity Framework in concert. Following COP 15 in Montreal, the Paris Summit is an opportunity for MDBs to report progress on their commitments to further develop their work (strategy, methodology, finance) on biodiversity in the coming years. MDBs to align their portfolios with goals and targets of the Global Biodiversity Framework while avoiding the overlap and duplication of activities with the new Global Biodiversity Framework Fund and the existing concessional windows and thematic funds.
6. Enhance MDBs’ tools for climate and disaster risk finance and insurance mechanisms. MDBs to consider the inclusion of climate resilient debt clauses in their lending instruments and to scale up and facilitate contingent emergency component clauses, contingent lending arrangements, pre-arranged financings, guarantees and other partnerships insurance tool while respecting sound banking principles.
7. Support countries to devise their paths to sustainable development and green transition, with a strong focus on capacity building, policy dialogue, reforms and underlying analytics. MDBs should be more coordinated and should enhance the way they accompany and support developing countries and their financial institutions in the elaboration of their Long-Term Strategies or their resilience policies. They should keep strengthening and sharing the result of their analytical products, such as the World Bank’s Country Climate and Development Reports (CCDRs), and incorporate this analytical work into their country-level engagement and policy-based lending. They must share their long-standing expertise and become a reference in terms of methodologies. To do this, they must strengthen their cooperation and avoid methodological divergences, so that tools are clear and useful for client countries.

United Nations Secretary-General’s SDG Stimulus to Deliver Agenda 2030 (FEBRUARY 2023)

The SDG Stimulus calls for a substantial increase in financing for sustainable development, on the order of at least 500 billion per year - at the bare minimum, by long-term affordable financing – requiring a major expansion of lending by the MDBs and better terms on borrowing.

The SDG Stimulus puts forward three areas for immediate action:

1. Tackle the high cost of debt and rising risks of debt distress, including by converting shortterm high interest borrowing into long-term (more than 30 year) debt at lower interest rates.
2. Massively scale up affordable long-term financing for development, especially through public development banks (PDBs), including multilateral development banks (MDBs), and by aligning all financing flows with the SDGs.
3. Expand contingency financing to countries in need.

Regarding affordable long-term financing, the SDG Stimulus highlights the need to:

Strengthen the MDBs by increasing their capital bases, better leveraging their balance sheets, and re-channelling SDRs through them.
Improve the terms of lending by MDBs, including longer-terms, lower interest rates, use of state-contingent clauses, and more lending in local currencies.
Strengthen the system of public development banks (PDBs), with increased capacity and more cooperation between national and multilateral banks.
Meet ODA commitments with allocations of grants based on vulnerabilities, not only income.
Combine public and private finance towards public aims with a focus on development impact and country ownership.

Our Common Agenda Policy brief 6: reforms to the international financial architecture, A/77/CRP.1/Add.5, (18 May 2023)

Reform and strengthen global economic governance
Action 1: transform the governance of international financial institutions

Update IMF quota formulas to reflect the changing global landscape.
Reform voting rights and decision-making rules to make them more democratic, for example through a double majority rule.
Delink access to resources from quotas, with access instead determined by both income and vulnerabilities (through a multi-vulnerability index or “beyond gross domestic product (GDP)” indicators).
Boost the voice and representation of developing countries on boards and improve institutional transparency.
Strive for gender-balanced representation in all the governance structures of these institutions, in particular at the leadership level.

Action 2: create a representative apex body to systematically enhance coherence of the international system

Lower the cost of sovereign borrowing and create a lasting solution for countries facing debt distress
Action 3: reduce debt risks and enhance sovereign debt markets to support Sustainable Development Goals

Update principles of responsible borrowing and lending to reflect the changing global environment and the human rights obligations of States.
Increase debt management and transparency.
Improve debt sustainability analysis and credit ratings.
Improve debt contracts, including by incorporating State-contingent clauses.

Action 4: enhance debt crisis resolution through a two-step process: a debt workout mechanism to support the Common Framework and, in the medium term, a sovereign debt authority

Expand Common Framework eligibility to middle-income countries that have significant official debt and require debt restructuring.
Set up a debt workout mechanism, for example at a multilateral development bank, to address slow progress in the Common Framework due to creditor coordination challenges among and between official and commercial creditors.
Create an inclusive and representative sovereign debt authority to develop and implement a multilateral legal framework for sovereign debt restructuring.

Massively scale up development and climate financing
Action 5: massively increase development lending and improve terms of lending

Multilateral development banks boost lending to 1 per cent of global GDP (by $500 billion–$1 trillion a year), supported by an increase in paid-in capital and more efficient use of their balance sheets.
Offer ultra-long affordable financing, with State-contingent repayment clauses, and ease modalities of access to such financing.
Increase local currency lending, while better managing risk through diversification.

Action 6: change the business models of multilateral development banks and other public development banks to focus on Sustainable Development Goal impact; and more effectively leverage private finance for Sustainable Development Goal impact

Update development bank missions, policy, practice, metrics and internal incentives to focus on Sustainable Development Goal impact and climate action, aligned with international human rights, labour, and environmental norms and standards.
Phase out fossil fuel finance and adopt a stronger focus on advancing the right to a clean, healthy and sustainable environment.
Develop new frameworks for when and how to scale up leveraging private finance to maximize sustainable development impact.

Action 7: massively increase climate finance, while ensuring additionality

Consolidate and increase climate financing, align it with the Paris targets and better coordinate among remaining climate funds.
Multilateral development banks and donors to assess and report on whether climate finance is additional to development assistance.
Scale up adaptation financing to 50 per cent of total climate finance, and massively scale up grant finance.
Quickly operationalize the loss and damage fund with new source of funding.

Action 8: more effectively use the system of development banks to increase lending and Sustainable Development Goal impact

Set up a joint insurance or reinsurance fund to manage risk more effectively across the system of multilateral development banks.
Increase collaboration across the system, in terms of co-financing, capacity-building and knowledge-sharing.

Action 9: ensure that the poorest can continue to benefit from the multilateral development bank system

Donors should meet official development assistance commitments and channel grants through efficient multi-donor structures, and consider permanent international financing mechanisms for concessional finance.
Donors should commit to the principle that commitments to the least developed countries and other low-income countries will continue to be met.
Increase concessional resources, including International Development Association contributions.
Systematically consider vulnerability in all its dimensions in allocation criteria, going beyond GDP and ad hoc exceptions.

Strengthen the global financial safety net and provide liquidity to countries in need
Action 10: strengthen liquidity provision and widen the financial safety net

Revamp the role and use of SDRs. This includes more automated SDR issuance in a countercyclical manner or in response to shocks, with allocations based on need (see sect. III).
Make IMF lending more flexible, with fewer conditionalities and access limits and the removal of surcharges; borrowing limits should be based on needs to combat crises, rather than on quota multiples.
Set up a multilateral currency swap facility.
Strengthen regional financial arrangements.

Action 11: address capital market volatility

Strengthen macroeconomic coordination.
Developing countries have access to the full capital account management toolbox.
Source countries of capital flows should play an active role in reducing volatility.

Reset the rules for the financial system to promote stability with sustainability
Action 12: strengthen regulation and supervision of bank and non-bank financial institutions to better manage risks and rein in excessive leverage

Regulate according to the principle of “same activity, same risk, same rules” to address financial stability and integrity risks from both bank and non-bank financial institutions.
Address short-term incentives through tax incentives, incentive-based compensation, and the creation of long-term indices and credit ratings.

Action 13: make businesses more sustainable and reduce greenwashing

Strengthen and mandate company sustainability disclosure and compliance with the Guiding Principles on Human Rights and Business.
Make “sustainable” investing more credible, including by fixing sustainability ratings.
Update market regulations, standards and practices to place the Sustainable Development Goals, and especially climate action, at the heart of the operation of markets and economies.
Require clear Sustainable Development Goal-oriented transition plans from each institution within the international financial architecture.
Design policy and regulatory frameworks to create and enforce direct links between profitability and sustainability.

Action 14: strengthen global financial integrity standards

Integrate financial integrity into financial reform measures and systems.
Create global standards for holding professionals accountable for the illicit financial flows that they facilitate.

Redesign the global tax architecture for equitable and inclusive sustainable development
Action 15: strengthen global tax norms to address digitalization and globalization through an inclusive process, in ways that meet the needs and capacities of developing countries and other stakeholders

Explore options to make international tax cooperation fully inclusive and more effective.
Simplify global tax rules to benefit underresourced developing country tax administrations
Significantly increase the global minimum corporate income tax rate to be close to the statutory tax rates in most developing countries and give preference to source country taxation.

Action 16: improve pillar two of the proposal by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting to reduce wasteful tax incentives, while better incentivizing taxation in source countries

Action 17: create global tax transparency and information-sharing frameworks that benefit all countries

Create non-reciprocal tax information exchange mechanisms to benefit developing countries.
Publish beneficial ownership information for all legal vehicles