UN turns sustainability spotlight on credit ratings agencies and calls for global definitions

The world’s governments look set to push credit ratings agencies to increase their focus on the Covid recovery and sustainable development, and have called for a global agreement on the economic activities that can credibly be called ‘sustainable’. 

The UN’s Social and Economic Council outlined its “draft intergovernmentally agreed conclusions and recommendations” last week. The council is made up of more than 50 governments including the US, China, the UK, Germany, France, The Netherlands, Canada, Australia, Indonesia, China, Japan, Pakistan, Russia and Colombia. 

The 13-page document lays out statements, commitments and requests relating to the role of private and public finance in achieving the UN’s 2030 Agenda for Sustainable Development. 

One such statement reads: “We will explore options to engage credit-rating agencies in the context of the COVID-19 recovery and implementation of the 2030 Agenda and invite the Inter-Agency Task Force on Financing for Development to include analysis in this regard in its 2022 report”. 

The Inter-Agency Task Force on Financing for Development is a body comprising more than 60 UN agencies and other institutions, including the IMF and World Bank, which is mandated to report annually on progress towards the 2030 Agenda, and make recommendations to UN member governments.  

Staying on debt, the Social and Economic Council invited creditors and debtors to consider “the use of debt instruments, such as debt swap initiatives, for sustainable development and climate action”. 

“We stress that debt restructuring could create an enabling environment for investing in the Sustainable Development Goals while maintaining sustainable debt levels,” it continued. “Debt restructuring should be coupled with addressing the systemic debt vulnerabilities, improving fiscal policies and ultimately managing debt in a more transparent and sustainable manner. In this regard, we call upon the international community to strengthen inclusive dialogues and mechanisms on sovereign debt to advance the discussion on debt transparency and responsible lending and borrowing and the rules of engagement, including with the private sector.”

The group also emphasised the need for more private capital to be allocated to sustainable development in developing markets, noting “that financial institutions are seeking investment opportunities in sustainable infrastructure, but most developing countries are unable to access this capital. At the same time, investors have been unable to adequately access viable investment projects in most developing countries.”  

Council members said they were committed to developing an ecosystem to overcome these challenges, and called on other stakeholders – including development banks – to do the same.

“We will incentivise additional financing and investment in sustainable infrastructure and facilitate efforts to channel long-term sustainable investment to developing countries,” they said in the document, adding that they would develop a pipeline of investable projects and use risk-sharing mechanisms to attract private investors.  

The Social and Economic Council also used the document to express support for the development of “globally consistent and comparable international standards for sustainability-related disclosure” and “a common framework of definitions and criteria for sustainable economic activities” – a move described by one UN expert as “the first time there is such a specific agreement at the global level on these questions”. Numerous disclosure standards currently exist, although there are efforts to consolidate the frameworks to avoid confusion and fragmentation. Likewise, criteria to define sustainable economic activities – commonly known as ‘taxonomies’ are developing at different paces, and with different outcomes, all over the world. 

Tax was another focus of the group, which called for “more concerted efforts at the national level, where appropriate, to address the role of financial institutions, and of legal and finance professionals and others in enabling corruption, crime and tax evasion”. 

“In addition, we will consider, where appropriate and consistent with national legal systems, the possibility of waiving or reducing to the barest minimum the processes and costs of the recovery of assets,” it said.