The clock is ticking on climate finance, and the world is looking to the G20 for leadership. At the T20 Midterm Conference, a crucial panel discussion unfolded. Moderated by Daniel Bradlow, co-chair of the T20 Task Force on Financing for Sustainable Development, four task force members – Priyadarsha Dash, Artem Levenkov, Garth Le Pere, and Hannah Ryder (also a TF3 co-chair) – were challenged to distill their collective wisdom into three actionable recommendations for the G20 on sustainable finance. Below is a summary of their recommendations.

Meaningful reform of the G20 Common Framework and global sovereign debt architecture

• Although the immediate risk of a systemic sovereign debt crisis might be contained, there is still a significant possibility that many countries could face sovereign debt crises. Consequently, the G20 should act to significantly reform the sovereign debt restructuring mechanism and procedures.
• The G20 should facilitate the use of ‘debt-for-nature’ swaps that help high-debt countries to use their outstanding debt and debt service obligations to support suitable climate action projects. This instrument can simultaneously mitigate two major challenges facing high-debt countries. First, it provides sizeable relief from any immediate debt service and second, it helps countries avoid unnecessary delays in climate action due to lack of funding.
• The G20 Common Framework must expand its scope to formally include middle-income countries, which increasingly face unsustainable debt burdens.
• Currently, the global credit rating industry is oligopolistic in nature with a few agencies controlling the lion’s share of rating business worldwide. Aside from a general overview of the rating parameters, agencies have not provided sufficient information about their rating methodologies. Due to the lack of transparency, both the investor-pay and user-pay models are inherently inadequate for assessing the growth prospects and risks of entities being rated. The G20 should encourage more credit rating agencies (CRAs) to join the industry, which would lead to improved transparency, diversity in rating techniques and methodologies, and improved risk pricing. The G20 countries where the major CRAs are based should mandate that these agencies maintain a full-time presence in any country they assess.

Scaling the impact of Multilateral Development Banks (MDBs)

• The G20 should help low- and middle-income countries (LMICs) improve their access to development finance by implementing the 2022 Independent Expert Panel review of MDBs proposal that MDBs and shareholders set up a working group to agree on standards for Preferred Creditor Status, callable capital, and relevant aspects of capital adequacy.
• The G20 should urge MDB management and shareholders to harmonise their understanding of what constitutes risk and the definition of risk premiums in their operations. This will help them persuade the three major CRAs to reduce the divergences in their credit rating methodologies for MDBs. 
• The G20 should implement the necessary measures to ensure that the increased MDB lending capacity, beyond gains from CAF reforms, directly benefit LMICs. Furthermore, these gains should be leveraged to attract more private actors that cooperate with MDBs on blended finance initiatives and other modalities aimed at mobilising additional resources for financing sustainable development. MDB co-financing can also enable MDBs to reduce their exposure to specific projects and optimise allocation of resources to projects in different sectors.  
• The G20 should also encourage the MDBs to be more creative in delivering concessional support to low-income countries. The collective group-based, trust-anchored, solidarity driven approach pioneered by Grameen Bank, among others, is a possible model in this regard. 
• To provide more stable and predictable financing, MDBs should establish and pursue clear targets for greater local currency lending in their strategies. 
• The G20 must expand the scope of the G20 MDB Roadmap to include regional and sub-regional multilateral financial institutions. 

IMF reforms still require G20 attention

• The G20 must commit to IMF quota reform. Specifically, the G20 should endorse a doubling of IMF quotas/shares to African countries. One way to achieve this outcome would be to replace the variability variable in the quota formula with the Special Drawing Rights utilisation rate. 
• The G20 should also discuss reforms that improve the transparency and accountability of all the IMF’s operations.  
• The G20 must encourage the IMF and the World Bank to correct the flaws in the debt sustainability framework for low-income countries. As the framework currently stands, it does not adequately account for all the debtor country’s assets – including debt and nature-based assets – or for the impact of climate factors on the country’s debt sustainability analysis.  It also provides significant discretion to IMF officials in ways that are excessively opaque and unaccountable.   

The G20 should promote establishment of the Africa Financing Stability Mechanism (AFSM) to support African countries in times of crisis. The AFSM will enhance overall global financial stability by providing a crucial liquidity backstop. Currently, most African countries rely solely on the IMF as a financial safety net.