The IFF held an academic workshop titled ‘Filling the Gaps in the Global Financial Architecture: A Plan for Action IFF’ on September 26. This forum, which presented a report authored by IFF Vice President Siddharth Tiwari, Former Chief Representative for Asia and the Pacific of the Bank for International Settlements, was held under the aegis of the Bretton Woods Committee, which published Tiwari’s report titled ‘Filling the Gaps in the Global Financial Architecture.’

IFF Vice President Gerry Rice, Former Spokesperson of the International Monetary Fund,  delivered the opening remarks, then handed over to Tiwari, who prefaced his presentation with a retrospective on the almost eight decades of prosperity since the founding of the World Bank and International Monetary Fund (IMF), before turning to the issue of the crisis in the global commons that has so dominated recent events, such as climate change and the pandemic. He cited the slow progress in redressing these threats due to gaps in the global architecture. Challenges of the commons have become more numerous and more pressing, he said, pointing to a global economy that is becoming ever more fragmented. Tiwari also noted the disruptions stemming from the pandemic and the rupture of the international order from Russia’s invasion of Ukraine. Strategic competition is now fueling political tensions and armed conflicts are severely testing multilateralism, he argued.

In the next 30 to 40 years, two-thirds of global growth is set to come from middle and low-income countries (MLICs), Tiwari stated, adding that these are the very countries most likely to be devastated by the adverse effects of climate change, which the private sector is key to solving, though it has yet to engage because, in developed countries, pricing has held back its critical role, while the uncertain investment environments in MLICs have produced similar results. The share China and India have been called upon to contribute to countering climate change is disproportionate, since they are not responsible for historical emissions. Tiwari urged taking a gap-based approach, citing governance, implementation, and accountability as the three substantive gaps in both the public and private sectors. As to governance, no institutions have overall responsibility to coordinate climate change policy, he said. Without such a mechanism, no progress is to be expected, since, with respect to implementation, no public institutions effectively lead or coordinate implementation in a transparent manner using international best practices. In the private sector, the gaps are governance, which requires mechanisms to establish transparent, effective decarbonization, and taking stock of goals and strategies - which are inadequate - while accurate data on the carbon footprints of corporations and enterprises is lacking, e.g., BlackRock holds trillions of dollars under management, but its carbon footprint is unknown. Regulatory and financial instruments to facilitate climate change investment and scale are likewise inadequate, Tiwari noted.

To fill these gaps Tiwari floated the idea of the formation of a new institution dedicated to climate change, but said it will take at least a decade for such an organization to be able to exert an impact, adding that it is no longer technically feasible to stabilize and bring down global carbon emissions, so the question now is how to do it quickly, fairly, and at scale. International financial institutions, regional development banks, and national development agencies can play a critical role in closing the gaps, provided they are made “fit for purpose” with respect to governance operating models and bring their “financial fire power” to bear.

Tiwari further recommended constituting ministerial-level decision-making bodies at the World Bank and the IMF pertaining to the global commons that require coordinated international public and private sector action. Tiwari recommended focusing multilateral action by expanding the supply of clean energy and phasing out coal, promoting adaptation, protecting the forests, expanding climate links, and financial instruments and for the World Bank to increasingly coordinate climate policies and development institutions across MLICs. IMF lending surveillance also needs to be strengthened to support action to mitigate climate change. The independent evaluation offices of the IMF, World Bank and regional multilateral development banks should periodically conduct integrated assessments of the process of financing and implementation plans, Tiwari proposed.

Relevant regulatory agencies should make the disclosure requirements of the International Sustainability Standards Board mandatory for companies listed on major stock exchanges. A strengthened IMF and World Bank would be best placed to lead the analysis, design, and promotion of global voluntary and regulated carbon markets, helping to finance the decarbonization actions to the end of supporting accountability actions. Voluntary disclosure is not a viable option, Tiwari argued, but rather market regulators should monitor disclosure. The crises of the global commons are overarching and these critical governance, implementation, and accountability gaps are blocking necessary progress. To accelerate momentum, his report calls for strengthening roles of the World Bank and recognizing that neither the public nor the private sector alone can resolve this impasse.

China holds both ends of the spectrum. It is behind Asian growth and has made great progress in cutting emissions. MLICs lack resources to tackle climate change, so the Bretton Woods Institutions - the IMF and World Bank - must step up as they already have the requisite “boots on the ground”  to mobilize, Tiwari said.

During the question-and-answer session following Tiwari’s presentation, IFF Executive Vice President Zhu Xian, Former President of the World Bank and Former Vice President of the New Development Bank, said asking for more resources from, e.g., the World Bank is infeasible. IFF Executive Vice President Lin Jianhai, Former Secretary of the International Monetary Fund, asked whether special drawing rights (SDRs) can be used to increase private sector flows into developing countries. Resources for this are lacking, Tiwari replied, so a strategy such as risk insurance is needed to minimize the risks to the private sector, and adding to global liquidity at time of high inflation is also problematic. SDRs may be very useful in this framework, but are no lasting solution as they generally favor developing countries. MLICs lack financing to mitigate climate change, so a global G20-style framework is thus needed, but one that encompasses far more than 20 countries.

Rice then made the closing remarks, predicting Tiwari’s report will have quite a “long tail” and serve as a useful reference for reform of the Bretton Woods Institutions.