TO DELIVER THE SUSTAINABILITY AGENDA, BARRIERS TO LIQUIDITY AND PRODUCTIVITY MUST BE ADDRESSED

Contribution to the 2022 G20 process: introducing the « Sustainable Growth Propeller », a pragmatic conceptual framework to support firms towards the Sustainability agenda

The Sustainable Growth Propeller

ECONOMIC GROWTH

STABILITY

PRODUCTIVITY

Wider Economy & Employment

GVCs and SMEs

Larger Frims

Banks / Fls

Projects

Gianluca Riccio, 2022

---

## CONTENTS

**FOREWORD _ p. 2**

**EXECUTIVE SUMMARY _ p. 3 to 4**

**CHAPTER 1 – SUSTAINABILITY: EFFICIENCY IN ACCESSING FUNDS IS KEY _ p. 5 to 10**

**CHAPTER 2 – A NEW EFFECTIVE OPERATING MODEL FRAMEWORK _ p. 11 to 12**

**CHAPTER 3 - PRAGMATIC RECOMMENDATIONS TO DELIVER SUSTAINABILITY AND HOW**
**TO PUT IN PRACTICE THE FRAMEWORK – p. 13 to 22**

**Recommendation** 
1) Stability – G20 Leaders should set a goal of cross-border and cross-policy harmonization, as 
well as encourage mechanisms to enhance efficiency _ p. 14 to 15

**Recommendation** 
2) Productivity – G20 leaders should create programs to enable firms’ access (and expertise) to 
data and digital platforms that facilitate their participation in GVCs and to supporting efficient 
working capital deployment _ p. 15 to 20

**Recommendation** 
3 ) Economic Growth – G20 Leaders should leverage the Sustainability Agenda’s funding and 
investments to support GVC ecosystems _ p. 20 to 21

**Infrastructure Investments – a case in point _ p. 22**

**ACKNOWLEDGEMENTS _ p. 23**
**LIST OF ACRONYMS _ p. 24**
**BIBLIOGRAHY _ p. 25 to 27**

---

## FOREWORD

In 2021 the G20 and COP26 made collective commitments towards and outlined requirements relating to
**Sustainability investments**. The operationalization of these commitments represents an opportunity to also
address long-standing issues that have curtailed productivity and growth. They can be deployed in practice to
accelerate key enablers like the **systemic ability to net payments that will bolster working capital of firms at all**
**stages of Global Value Chains (GVCs)**. This will be particularly helpful for facilitating sustainability-led investments.
Other enablers like a globally coherent use of digital platforms and data standards are required to facilitate
payments that efficiently meet all relevant ESG requirements. Efficiency will result from avoiding unnecessary
administrative and compliance costs. Such use will enable financing to be accessible to both Micro, Small and
Medium-Sized Enterprises (MSMEs) as well as larger corporates on a long-term enduring basis, while also ensuring
transparency and payment “traceability.”

To deliver on the ambitions set by the G20 Sustainability agenda, policymakers need to strive for both
comprehensive and complementary policies that target inclusive economic growth, productivity and stability as
core objectives. “**Joining the dots**” across policy objectives has been at the core of the joint work between the **B20**
and **Business at OECD** (BIAC) since 2015, more recently joined also by the **International Organisation of**
**Employers** (IOE), culminating in a series of B20-BIAC-OECD annual events on Finance and Sustainable Growth and
related publications led by Gianluca Riccio, Vice Chair of the Business at OECD Finance Committee. Each year, the
conclusions have helped pave the way for action by G20 leaders. Contributions to these publications came from
diverse business and employers’ federations, business associations, large corporates and financial institutions.

As part of the **G20 Indonesia**, **this paper proposes a dynamic conceptual framework of concrete actions in**
**support of Sustainability**; advancing the work of previous Presidencies. This framework, named **“Sustainable**
**Growth Propeller”, envisions** a balanced approach aimed at raising efficiencies by reducing bureaucracy while
increasing transparency and traceability, as well as facilitating firms’ access to wider markets. The vision is **aimed at**
**all firms, but may particularly benefit MSMEs,** who face proportionately higher cumulative regulatory and
administrative burden relative to their resources. As MSMEs are the largest job creators and backbone of our
economies, they have en a key role in the green transition without which the Sustainability agenda cannot be
delivered.

**We encourage G20 Leaders to support the “Sustainable Growth Propeller”** concept, as a powerful enabler of
sustainable and inclusive economic growth globally. In order to deliver the Sustainability agenda, fast-track growth,
job creation and inclusion **requires** both an **active industry participation** in the process, and G20 leaders to lend
their support to breakthrough **efficiency proposals,** like the **concrete recommendations set out in this paper.**

**Shinta Widjaja Kamdani**
Chair 
B20 Indonesia

**Charles (Rick) Johnston**
Chair 
Business at OECD

**Michele Parmelee**
President
IOE

---

## EXECUTIVE SUMMARY

## Context

The G20 in Rome and the COP26 in Glasgow in 2021, and more recently the German G7 in 2022, have made clear
that urgent global action needs to be taken towards **Sustainability** and that extensive funding is required to make
further progress in this area. As suggested by the B20 Italy, Sustainable investments are an overarching scope of
action to properly tackle global emergencies [B20, 2021]. **Resources alone, however, will not be sufficient if**
**firms face difficulties in accessing such funds** due to high regulatory and transaction costs, long-dated inherent
risks and fragmented ecosystems, **challenges are most palpable for MSMEs**., who appear to **have been left**
**behind in the agenda**, despite being the largest employer globally. Therefore, the use of digital tools and global
data standards, such as the Legal Entity Identifier (LEI), can prove to be essential to reduce costs and fragmented
approaches across borders for the business community and help set the stage for better risk management
information in the future.

The extraordinary impact of the COVID-19 pandemic has served as an unprecedented wake-up call highlighting the
fragility of our systems. At the same time, **the pandemic has shown that coordinated efforts can successfully**
**counteract such fragility**: vaccines being a primary example. As the OECD put it in 2020, “the deep
interconnectedness and interdependence of global systems imply that any local crisis can rapidly scale up to
(1)
contribute to planetary environmental, social, economic, and political emergencies.”
The pandemic has shown that a significant policy challenge does not relate only to adopting sustainable solutions
to reduce global crises, but critically **revolves around the need to implement such policies** in a coordinated and
cooperative way at the global level: without cross-border and cross-policy coherence, investments cannot really
deliver their full potential.

The pandemic has shown that **Global Value Chains (GVCs)** are essential enablers across world economies. Efficient
GVCs ensure timely payment flows and support the optimization of working capital on the buyer side and generate
operating cash flow on the supplier side. In turn, they enable domestic commercial activity and provide working
capital to local businesses, critical for middle-income economies facing significant financing gaps.

## Objectives

**ESG** (“environment”, “social” and “governance”) continues to gain momentum, especially around Sustainability,
both in firms' investment decisions, and in developing public policy incubators. By way of example, in late 2021 the
IFRS Foundation formed a new International Sustainability Standards Board (ISSB) to develop a comprehensive
“path to global baseline” of high-quality sustainability disclosure standards to meet investors’ information needs;
the G7 “urged to actively cooperate to reach standards that can be implemented globally” [G7, 2022].

This paper looks at the G20 **Sustainability 2030 Agenda from the firms’ perspective**: it focuses on economic
growth, financial stability, and productivity within planetary and social boundaries. The paper **proposes an**
**inclusive framework** that allows to deliver environmental projects and maximise social sustainability, breeding an
enduring **virtuous circle**. Governments need to support **all firms**’ working capital by removing obstacles and
cumulative burdens preventing them from accessing funds, which otherwise would impede the intended growth
trajectory.

Such an operating environment is key to facilitate the transition towards a sustainable and internationally inclusive 
global economy.

---

**Environmentally-led investments** are the ideal opportunity to test innovative ideas to facilitate payments and
working capital, making them more efficient throughout GVCs, across both borders and sectors, which in turn can
act as an enduring flywheel that sparks employment and knowhow, aiding social sustainability.

**The vision** introduced in this paper, defined as the “**Sustainable Growth Propeller**”, **is aimed at all firms**, but may
particularly benefit MSMEs who face proportionately higher cumulative regulatory and administrative burden
relative to their resources, as well as a more difficult borrowing environment. **Improving firms' productivity in**
**delivering the Sustainability agenda is a perfect case in point for concrete policy intervention to aid**
**economic recovery while fostering progress towards the environmental targets: a win-win opportunity**.

**This paper progresses the work started in 2015** with a series of **Business at OECD-B20 publications**, part of the
G20 cycle (June 2015, June 2016, April 2017, Sept 2018, January 2020, September 2020, July 2021). Our work aims
at illustrating how finance links to other policy areas to overcome fragmented policymaking.

The **paper is structured** as follows: **Chapter 1** summarises the risk that broadly drafted ESG rules may increase the
obstacles faced by firms in accessing funding and operating efficiently across GVCs. **Chapter 2** introduces a simple
framework to facilitate such access, showing the impact it can have on the wider economy and employment,
globally. **Chapter 3** proposes pragmatic actions to put such framework in practice in respect of Sustainability
investments.

**Recommendations to the G20**

**Cutting across the B20 Taskforces**, and hence closely interlocked with their relevant recommendations and policy
actions, this paper advances the "GVC Passport" concept [B20-BIAC, 2020] focusing on how Sustainability-led
investments can be the "use case” to facilitate working capital and payments flow across relevant GVCs, and
therefore offer a mechanism benefiting the process end-to-end, namely:

**a) Governments need to assess firms’ cumulative regulatory burdens throughout GVCs**. – As ESG rules and
regulations are set and implemented, it is critical to **avoid unintended consequences**. Firms’ productivity
should not be curtailed by unintended policy obstacles. Ultimately, a stable, coherent and inclusive regulatory
environment is a “must” to meet the Sustainability objectives and to enable the relevant investment.

**b) Governments need to enable a shift towards both electronic data verification compliance and**
**digitalisation of documents**. How contradictory is it to have the documentation relating to the
Sustainability agenda be paper-based? Also, Sustainability reporting requirements need to consider firms’
productivity by harmonizing rules, while avoiding formalistic rigidities that obstruct data usage.

**c) Both Governments and firms need to enhance the use of digital platforms and highly efficient**
**information and communication networks** – data and Distributed Ledger Technology (DLT) play a crucial
role in creating trusted sources of standardized information, across the GVC. As DLTs hold much richer data
sets than any one existing system today, they could be used as baseline infrastructure to enable a safer,
seamless and more efficient flow of goods between digitally interconnected trading partners (vs. loosely
connected in traditional processes); though DLTs need encryption standards and mechanisms to ensure they
can be trusted.

**d) The G20 should support productivity, by freeing up firms’ blocked working capital needs –** A resulting
benefit would be to aid firms, suppliers and public administrations to raise efficiencies such as timely meeting
of invoices, even netting payments: thereby improving timeliness of payments, thus increasing firms’ working
capital, and so **propelling benefits across the global economy and employment**.

---

# CHAPTER 1 – SUSTAINABILITY:

# EFFICIENCY IN ACCESSING FUNDS IS KEY

## G20 and COP26 agenda towards Sustaina-bility, the challenge is in the “how”

[1]
G20 Leaders in Rome (October 2021) agreed to
**limit temperature rise to 1.5 degrees Celsius**
above pre-industrial levels by 2100 (Figure 1
presents the visualization<u>[2]</u> of monthly global
temperature anomalies between 1880 and 2021).
To do so, it is crucial to reach net zero greenhouse
gas emissions or carbon neutrality by 2050<u>[3]</u>. To
be on track to reach that goal, scientists estimate
that global emissions must be halved by 2030. G20
leaders thus committed to take further action in
the 2020s to enhance 2030 nationally determined
contributions (NDCs). They also agreed on the
importance of a more systemic analysis of
macroeconomic risks coming from climate change
and a wider range of fiscal, market and regulatory
tools needed beyond just carbon pricing. This
affirms a strong mandate for finance and
macroeconomic transformation.

Overall, the G20 has given momentum into
Sustainability objectives, but now the world faces
the challenge of turning these political promises
into agreed processes.

**Figure 1 - GISTEMP Climate Spiral**

On a positive note, the G20 Italy and COP26 saw
**unprecedented commitments from the private**
**sector** to reach Sustainability goals and supply the
trillions of dollars needed to fund the transition.
**Active industry participation** and establishing
efficient private-public collaboration mechanisms **is**
**paramount**, and further progress requires G20
developed countries to:

presents the visualization applewebdata://03A371E4-87B6-48FE-8142-2EB3E085ADC8/#_ftn2 [2] of monthly global

Mobilise the trillions needed in low-cost applewebdata://03A371E4-87B6-48FE-8142-2EB3E085ADC8/#_ftn3

• **Mobilise** the trillions needed in low-cost
financing for all countries: this needs to include
developing ones to transition, as they play a key
role in GVCs;

• **Remove barriers** to make funding more easily
accessible by firms of all sizes, needing to
operate efficiently across their respective GVCs.
Removal of barriers can come in the form of
reducing unnecessary bureaucratic, administrative and regulatory burdens on firms and
eliminating data gaps, which create risk aversion
for potential investors or lenders.

Against this background, it is **important to recognize**
**that** enhanced Sustainability cannot be built on a
cumbersome financial regulation and trade
framework. As governments remove public fiscal support and stimuli packages introduced in response to
the health crisis, a key policy challenge remains the
prevention of widespread insolvencies, resulting from
more recent labour, food and energy price shocks.
This can be offset by improving efficiency and access
to GVC's by MSMEs. **Properly strengthening and**
**facilitating access to sustainability funding and**
**investments can also spark a robust economic**
**recovery (**a **flywheel effect) that is socially**
**sustainable and inclusive; i.e. fairly distributed**
**across firms of all sizes, markets and regions**.

---

In 2017 under the G20 German Presidency, the
GPFI has underscored the importance of SME
finance in sustainable GVCs by further aligning the
agenda with Sustainability Development Goals
(SDGs), demonstrating how governments, financial
institutions and businesses can work together to
support financing models that encourage SMEs to
upgrade their production processes to meet
sustainability standards in GVCs [GPFI, 2017].

## A ”bumpy road” in accessing Sustainability investments

It is widely recognised that supporting firms’ ability
to operate within value chains, both globally and
domestically, is an essential pre-requisite for
economic well-being and recovery as well as, over
the longer-term, sustainable growth and innovation. It is concerning that GVCs, which encompass
firms of all sizes, are still hampered by a number of
obstacles, as outlined in a recent IOE contribution
[IOE, 2020].

Challenges to firms come from the still evolving,
highly fluid and dynamic (and inconsistent) nature
of ESG and sustainability frameworks, which can be
summarised in **three main groups**:

**1. Unnecessary regulatory and administrative** 
**burdens**

**2. Productivity is key, but too many obstacles** 
**restrain firms**

**3. Low Growth trap**

## 1. Unnecessary regulatory and administra-tive burdens

The OECD Declaration on Strengthening SMEs and
Entrepreneurship for Productivity and Inclusive
Growth [OECD, 2018] recognises that an effective
regulatory environment, effective contract
enforcement and justice system, as well as
transparency and integrity in the public sector are
**critical to enable MSMEs and entrepreneurs** to
thrive, scale up, and contribute to an open,
(5)
digitalised and inclusive economy.

Furthermore, B20 Indonesia exposes the importance of
greater MSMEs inclusion into the GVCs to improve
global economic resilience and withstand continuous
GVCs disruptions owing to pandemics or other global
crises.

**Unfortunately, businesses continue to suffer from**
**unnecessary red tape and paper-intensive**
**processes, which hold back competitiveness and**
**liquidity.** Policy and reporting standards
fragmentation (and frictions) continue to impede the
free flow of people, capital, goods and services, as the
global economy remains divided into separate
jurisdictions; showing its weaknesses during the
COVID-19 pandemic..

In many countries, excessive and overly complex
regulation creates legal uncertainty, and the variety of
rules imposes cumulative burden on firms,
exacerbated by inconsistent cross-border
implementation of policies and compliance regimes;
generating, at best, dispersion of efforts and, at its
worst, negative unintended consequences. Also from a
tax perspective, governments must aim to raise
additional revenues without deterring entrepreneurship.

The achievement of climate and broader sustainability
goals **requires a new regulatory paradigm**.
Ultimately, **a stable and coherent, regulatory**
**environment is needed; one which also recognizes**
**the need for firms to compete and take risks**.
Businesses should not have to bear **unnecessary**
**burdens**, which hold back investments,
competitiveness and productivity. In many countries,
regulatory inflation continues to undermine the clarity
of the law, and therefore, undermines investment.
Fragmentation across borders, by way of example, is
increasingly evident in the context of **ESG ratings**,
which are vastly more inconsistent than credit ratings
for the same corporations.

**(5) OECD (2022b**), OECD Recommendation on SME and Entrepreneurship Policy calls for ensuring that implications for SMEs are 
considered across the diverse policy areas that influence their prospects and outcomes in order to enhance policy synergies, address 
potential trade-offs and reduce administrative burdens, including through increased attention to their specificities and circumstances in 
policy and regulatory design, SME tests and evaluations, consultation mechanisms, streamlined processes and user-centric approaches in 
implementation.

---

**Companies have themselves become more focused** on screening both investments and performance on the
basis of **ESG criteria**, as well as asking to be evaluated by third parties. A positive ESG rating, in fact, gives firms
credibility. However, there is currently no standard way of defining and measuring firms across ESG criteria, with
methodologies differing considerably in how they measure performance and the weights applied to different
inputs, Figure 2 (analysis that also shows how the same firm may sit at opposite ends of the rating spectrum,
depending which methodology is chosen).

The fact that methodologies applied for these assessments vary significantly, poses a growing **risk** of
inconsistency and inefficiency as businesses may be required to observe multiple and incongruent ESG criteria
in the global supply chain, hindering the very value of such assessments. Hence the need for regulations and
standards coherence is increasing, but of critical importance is that these have to be consistent in their methods
across **both policies and borders**.

**Figure 2 – S&P 500 ratings correlation for different providers**

Note: Providers’ names in the legend correspond to the Y axis when at the left and to the X axis when at the right (e.g, Bloomberg (blue), 
MSCI (green) and Refinitiv (white) on Y axis and MSCI (blue), Refinitiv (green), Bloomberg (white) on X axis). Data from three leading rating 
providers (Bloomberg, MSCI, Refinitiv) with OECD Staff calculations. For full methodology, refer to source.

Source: Boffo and Patalano (2020), ESG Investing: Practices, Progress and Challenges, OECD Paris

We notice that several initiatives tackling the Sustainability challenge do not look properly harmonised, resulting
in an increasing risk of cross-border and cross-policy fragmentation, which means more paperwork, more rules
to understand and assess, making them harder to be met by MSMEs, who can’t afford specialists. This results in
their non-participation in the GVCs. Regulators and standard setting bodies across the world have started
consulting or have already deliberated on ESG-linked **standards and disclosure requirements** to be met in
order to qualify as “ESG-linked,” “sustainable” or “green”. Mentioning a few:

• In the **UK**, the Competition and Markets Authority issued its guidance in respect of <u>misleading environmental</u>
(6),
<u>claims</u> for both businesses and consumers and the Financial Conduct Authority (FCA) published guidance
on design, delivery and disclosure of ESG and sustainable investment funds in the form of a “Dear Chair letter.
(7)

(8)
• The **EU** has already published its Sustainable Finance Disclosure Regulation (SFDR), <u>imposing disclosure</u>
<u>obligations</u>(9)
to financial advisors and market participants, and the EU Green Taxonomy, which establishes a
list of environmentally sustainable economic activities and various follow-on obligations through its
delegated acts.

• Also, in June 2022, the **European Council and the European Parliament** have agreed the Corporate
Sustainability Reporting Directive (CSRD) that resulted from the process to revise the EU Non-financial
Reporting Directive (NFRD).

<sup>(6)</sup> https://www.gov.uk/government/publications/green-claims-code-making-environmental-claims

<sup>(7)</sup> https://www.fca.org.uk/publication/correspondence/dear-chair-letter-authorised-esg-sustainable-investment-funds.pdf

<sup>(8)</sup> https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32019R2088

<sup>(9)</sup> https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en

<sup>(10)</sup> Companies above 500 employees as well as third-country companies with turnover of 150 million Euro

<sup>(11)</sup> “Sustainable finance – environmental, social & governance ratings and sustainability risks in credit ratings”; EU Commission, May 
2022

---

The CSRD is a central part of the EU Sustainable
Finance package, a comprehen-sive set of
measures aimed to help improve the flow of capital
towards sustainable activities across the EU. The
objectives of the CSRD include to enhance
sustainability reporting within the management
report bringing in more extensive mandatory
sustainability reporting for a wide range of
companies and to require assurance on this
information, which includes an <u>obligation for EU</u>
<sup>(10)</sup>
<u>firms to adopt a plan</u> to ensure that the business
model and strategy of the company are compatible
with the transition to a sustainable economy and
with making Europe climate-neutral by 2050. The
CSRD amends the Accounting Directive, the
Transparency Directive, the Audit Directive and
corresponding Audit Regulation.

• **EU consultation** aimed at strengthening the
reliability and comparability of **ESG ratings**. It
also aims to ensure that rating agencies
incorporate relevant ESG risks in credit ratings.
(11)
The consultation paper flags that “the
initiative may lead to costs and administrative
burden for ESG rating providers, that could
possibly be passed to users. It might also have
some impact on the level of competition in the
ESG ratings market.”

• On a more global scale, in late 2021 the
**International Sustainability Standards Board**
<sup>(12)</sup>
(ISSB) was formed by IFRS Foundation with
the intent to deliver a comprehensive global
baseline of sustainability-related disclosure
standards. The ISSB has now run has done the
first consultation on global sustainability
disclosure standards, a good step forward with
transparency that is both welcome and needed.

• On the contrary, in the **US** although the SEC
requires public companies to make disclosures of
material information, which would obviously
include ESG-linked risks, there are currently no
mandatory ESG disclosures at the federal level.
Positively, in 2022 the SEC has launched a
consultation on Climate disclosure, which closed in
Jun

• Many other countries like **Japan** and **Hong Kong**
are currently consulting. As legislating on ESG
criteria and ESG-linked investments and products is
paramount, the fact that many of the pieces of
legislation are still at a consultation stage offers a
unique opportunity to helping to ensure they are
harmonized across the globe.

• In **Indonesia,** efforts have been made to advance
ESG-linked standards and disclosure reporting.
Indonesia’s Financial Services Authority (OJK) has
(13)
mandated financial services providers to submit
either a sustainability report or a sustainable
finance action plan since 2019, and all other issuers
and public-listed companies since 2020, through
OJK Regulation (POJK) No. 51/POJK.03/2017

As emphasised in previous years’ recommendations,
for any such regulatory initiatives as outlined above
**quantitative and qualitative impact assessments**
(ex-ante and ex-post) are critical and need to be
independent from the policy setting bodies.

---

**2. Productivity is key, but too many obstacles** 
**restrain firms.**

Productivity reflects the ability to **produce more**
**output by better combining inputs**, through
fostering efficiency, new ideas, technological
innovations and enhanced business models. It is about
“working smarter”, rather than “working harder”. OECD
economic analyses show that the lag in productivity, in
an interconnected world, requires stability (not just
financial) of the affected markets, as impacts go
beyond the investments’ immediate boundaries
[OECD, 2015].

As a result of the pandemic, the risk of defaults across
GVCs inevitably increased and with the recent
geopolitical crisis, costs (starting from food
commodities and energy costs) have materially
increased. Hence, to enhance productivity, it is critical
to **maximise firms' cash flows by improving the**
**efficiency** of the financing process, minimising their
need to over-leverage their balance sheet. An
unintended consequence from the above mentioned
climate-related regulations, could be even more stain
on the liquidity and leverage of any firm which intends
to participate in GVCs.

Notably, key to productivity is **access to finance**. Firms
are facing some key long-lasting obstacles, that need
to be removed to achieve the productivity levels
required to be a successful participant in GVC's.. In
addition to the above mentioned **cumulative**
**burdens**, it is important to highlight both:

## a) Lack of end-to-end (or inter-operable), easy to access, transparent trade platforms:

Multiple platforms used by numerous players lead to a
**fragmented landscape** and pose challenges for
initiatives to operate at scale [OECD, 2021] and may
increase risk of miscommunication and fraud.

Digital technologies (cloud, blockchain, big data
analytics, artificial intelligence, etc.) and their impacts
on how data as a new strategic asset is managed
**represent a huge opportunity for productivity and**
**growth, but also new**

**challenges** to the modern workplace and the
relationship between government, society and
business, with new threats and frauds, towards which
ensuring traceability and transparency is key.

## b) A fast data-driven world operated by ineffi- cient paper-based documentation

Data is diverse and the amount produced has been
growing exponentially, with no borders by definition.
On the one hand, the ever‐increasing possibilities on
**data storage and verification** are revolutionizing the
way businesses operate [EBF, 2016]. On the other
hand, several financing and operating processes
require **inefficient paper-based documentation**
including manual contracts, multiple checks (often
manual) leading to complexities, errors and delays,
and a contradiction to environmental efforts.

In today’s world, the use of data is no longer just an
opportunity, but a “requirement” and we must “turn
the digital divide into a digital dividend” [B20-BIAC,
2018]. The results can lead to a massive expansion of
the electronic footprint of both firms and individuals.
In particular, effective data-oriented processes and
platforms can offer MSMEs a competitive edge and
increase their productivity, reducing costs, enhancing
marketing, and strengthening their ability to identify
or foresee trends. Equitable digital infrastructure,
interoperability, free exchanges of data with trust, and
responsible sharing of appropriate data, therefore,
need to be done.

## 3. Low Growth Trap

Growth is not only important in itself, but **the type**
**and quality of growth also matters,** e.g., it is critical
that **growth is inclusive**. For over a decade, the OECD
economies have been facing the twin structural
challenges of **low productivity growth**, coupled with
low investments and trade, and **rising inequality**, the
“low growth trap”. Weak productivity has been a longterm trend that pre-dates even the financial crisis, and
then exacerbated by the recent health crisis.

---

Sustainability offers a unique opportunity to generate a **positive revolution** towards an inclusive economic growth.
However, such revolution cannot be exploited without **the key role played by MSMEs**, who are critical actors in
global climate efforts, not only as drivers of technological change, but also as adopters of green business models
and practices to reduce their environmental footprint, at the scale required to achieve the Paris goal & the SDGs.
**MSMEs** need to be at the core of the Sustainability agenda investment landscape.

This requires both overcoming the obstacles highlighted in previous sections that currently protract the low growth
trap, and the engagement across a range of actors in the financial ecosystem, including public and private financial
institutions, regulators, rating providers and others, at a very different pace from that experienced to date, as well
highlighted by the OECD in figure 3 [OECD, 2022a]. **Otherwise, sustainability is more likely to lead to greater**
**inequities** if it’s not pursued with more mindfulness from an MSME lens, as present approaches are impractical for
MSMEs.

The transition to green and circular economy, especially in developing countries, requires direct investment, both
public and private. The United Nations Conference on Trade and Development (UNCTAD) finds that the total annual
investments in SDG-relevant sectors in developing countries will need up to USD 4.5 trillion in funding. This
translates to an annual investment gap of USD 2.5 trillion.

**Figure 3 –Share of SME financial support in rescue and recovery packages by policy domain**

A **global coordinated effort driven by a consistent set of principles is required to address this finance gap**.
Public sector investment will not be enough to meet the green investment gap; private sector foreign direct
investment will be required.

Therefore, **G20 nations should engage closely with industry** in a public-private partnership to overcome the
barriers the private sector faces promoting green investments in emerging economies, such as:

a. Quality of project preparation (with technical assistance from MDBs);

b. Issues related to governance (with high reputational stakes for banks, and increased scrutiny through
the EU ESG framework, which, beyond strict climate-related criteria, also “minimum safeguard
standards” that cover the whole of ESG (EU taxonomy).

c. High political/fiscal risk (on price off-take etc.). Some guarantee schemes may help, but generally only
cover partially the project inherent risk over their lifetime.

d. Lack of secondary liquidity.

e. An investment system that safeguards investor rights, provides a rule-based approach for dispute
resolution and a welcoming environment to attract more private investment.

---

# CHAPTER 2 – A NEW EFFECTIVE

# OPERATING MODEL FRAMEWORK

**Sustainable growth** will benefit by first developing a
strategic vision and a strategic approach towards
that vision. This must set the ambition to build a
competitive economy that underpins an open,
innovative and inclusive society. The Sustainability
agenda set by the G20 can, and should, offer that
ambition, that strategic vision.

Such vision has the opportunity not only to achieve
the climate targets, but alongside that to affect the
structure of the economy as a whole, advancing skills
and innovation, supporting institutions and
employment ambitions and activating innovative
social policy. As such, it should not be created solely
by governments, but equally be owned by business
and the wider society together.

This paper proposes **a strategic vision to achieve**
**such sustainable growth**. It illustrates how these
recommendations “interconnect” in practice towards
common and / or interdependent goals, and how
such recommendations can be implemented through
concrete actions and solutions.

The B20 and Business at OECD work since 2015
has led to the creation of the well-known
“**Sustainable Growth Triangle**” (Figure 4): a
stylized framework which is meant to offer a
conceptual platform to evaluate a policy’s
support for sustainable growth. Imagining that
the global economy sits atop a three‐legged
stool, the legs represent **three pillars of the**
**economic system: [1] Stability; [2] Economic**
**Growth; and [3] Productivity**. The global
economy can only support aspirational
sustainably goals if the three legs are
balanced on the ground they stand on. To
address any one aspect a coordinated and
comprehensive approach involving all actors is
needed. It doesn’t matter what the policy is (it
can range from financial, to economic to
social); the question is whether it is striking a
balance with other policies or off-setting them
possibly generating unintended consequences.

**Figure 4 – The Sustainable Growth Triangle**

The core point is that only a **balanced approach can**
**offer growth that it is genuinely sustainable**. In this
paper, we take a step forward **from analysis towards**
**actions**:

• The triangle offers an approach to **evaluate**
**policies on their end-to-end impact**, assessing
whether any given policy being rolled out is
generating unintended consequences on the
other pillars, while meeting the requirements it
is intended for.

• This paper moves **from reactive to proactive**
introducing a different perspective on the same
challenges: **what actions** should be
recommended in order to sustain economic
growth that is **both sustainable and inclusive**?
Indeed, if we look at the triangle from a different
perspective this may look like a pyramid, an
**inverted pyramid** (Figure 5).

• Also, it is not just a question of public policies:
commercial decisions also affect the evolution of
the global investment landscape.

---

The objective now is to **put in place actions** and policies that support any initiative targeting the Sustainability
agenda, in order to generate a **virtuous “propeller” effect** that ultimately delivers economic growth and
employment that is both sustainable over time and inclusive in scale. It is, not just a question of public policies:
commercial decisions also affect the evolution of the global investment landscape. **Actions relate to each of the**
**three axes, but it is their combination that enables and propels the benefits**.

**Figure 5 – From the Sustainable Growth Triangle to the Sustainable Growth Propeller**

It is crucial to look at these “enablers” along the three axes not as a “laundry list” of individual actions, but rather
**as synergistic policy actions** aimed at accelerating progress on implementation of the Sustainable Development
Goals (SDGs), and to support a sustainable, inclusive and resilient growth across the world, able to promote equity
and accelerate progress on all SDGs [G20, 2021]. Examples include:

• Innovation must be at the heart of **regulatory policymaking** (**stability**), as it can boost productivity and
sustainable economic growth. Through innovation, governments can improve the regulatory environment by
adapting rules to new technologies to help ensure that they are fair, predictable, consistent, easy to enforce and
administratively “light” throughout the process. Compliance can be made more consistent, less costly and less
complex, thus **improving its transparency and traceability**, while ensuring competition and fostering
innovation..

• Facilitating **connections across the GVC, by reducing cross-border and cross-policy inconsistencies** on the
stability axis which in turn would support:

- MSMEs to access wider markets, hence supporting trade activities; and

- Firms, suppliers and administrations to significantly grow efficiencies such as maximizing working capital
or even better netting payments, hence improving timeliness of payments, and firms’ cash-flows.

• **Foster sustainability** starts from access to sufficient, reliable, and comparable information from financial and
non-financial entities on their climate, environmental, and social risks and impacts, which is still a challenge. This
challenge hinders investors from making sound investment decisions based on sustainable investment
objectives.

---

## CHAPTER 3 – PRAGMATIC RECOMMENDATIONS TO DELIVER SUSTAINABILITY AND HOW TO PUT IN PRACTICE THE FRAMEWORK

Policymaking has a key role to play in setting the **right conditions towards the Sustainability agenda** and
its investments, as well as in supporting firms’ integration, particularly MSMEs, in GVCs. Without the **critical**
**contribution of MSMEs**, leveraging on GVCs, it will not be possible to transmit the benefits of the
Sustainability agenda investments to the wider economy.

In this regard, the implementation of the 2022 Updated G20/OECD High-Level Principles on SME Financing
(or equally the OECD Platform on Financing SMEs for Sustainability) will be important to ensure that diverse
sources of finance flow to MSMEs, and so contribute to international co-operation to enhance provision and
uptake of sustainable finance for MSMEs.

**Working synergistically across the three axes** through measures that aim at strengthening firms’ working
capital while maintaining regulatory compliance, the Sustainability agenda can generate a flywheel effect that
starts with single projects and delivers economic growth and employment, which is structural and inclusive,
hence sustainable. This chapter outlines proposals on the **measures that G20 Leaders should focus** on in
order to help ensure that the Sustainability agenda is not simply delivered, but it gains traction for growth,
an enduring growth that can sustain itself over the long-term.

**From analytics to actions**
**Figure 6 – Concrete actions to ensure the Sustainability agenda “propels” the wider economy and employment**

---

## Recommandation 1

## Stability – G20 Leaders should set a goal of cross- border and cross-policy harmoni-zation, as well as encourage mechanisms to enhance efficiency

In order to deliver the Sustainability agenda and
meet its ambitious targets, it is critical that **firms**
**operate effectively throughout the GVC**. To
achieve this, it is vital to increase the overall
alignment in rules, regulations and standards. This
must be assessed against the **ultimate weight on**
**the final user** as a core parameter.

Nearly all OECD member countries (as well as several
non‐OECD countries) have established programmes
to reduce administrative burdens on businesses.
Governments can improve the regulatory
environment by designing administrative rules that
are fair, predictable, easy-to-enforce and efficient.
Such rules need to provide for **more consistent**
**responses** to policy challenges, changing societies
and the need to limit regulatory burdens.

To the contrary, as summarised in chapter 1, the
**Sustainability agenda risks delivering a**
**proliferation of** unharmonized **rules**, whose
fragmentation and inconsistency will ultimately
weigh on firms, and may easily overwhelm those
lighter on resources and capabilities, hampering the
very Sustainability agenda they were intended to
support.

The G20 countries **committed significant funds** to
support the Sustainability agenda [G20 Rome
(14)
Communique]. The challenge is ensuring that
firms can smoothly access those funds and that such
funds become a spark for the wider economy. In
order **to gain the benefits of the desirable and**
**necessary regulations in terms of Sustainability**,
but at the same time avoid the regulatory burden on
firms, two key actions are needed:

## Action 1.1 A cross-policy coherent framework: the importance of independent impact analyses

It is critical to ensure that a regulatory framework for
Sustainability is established ensuring that it does not
further increase administrative and regulatory burdens
on firms or capital requirements in the banking sector.
A framework is needed that fosters rather than
hampers economic growth and productivity. As well
highlighted by the G7 [G7, 2022] in relation to the
ISSB’s path to global baseline: this “should be
practical, flexible and proportionate and ultimately
suitable for SMEs and enable jurisdictions to
implement the baseline”.

**Regulatory coherence** to ensure a level playing field
is needed **both** across jurisdictions as well as within
each jurisdiction. **Cross-policy inconsistency** is
frequently overlooked but creates unnecessary costs
even at a local level. The risk of exacerbating crosspolicy inconsistencies is material as governments look
to regulate Sustainability and ESG disclosure.

Quantitative and qualitative **impact assessments** (exante and ex-post) independent from those bodies
setting the policies will prove critical. G20 Leaders
should recognize the need for broader and
independent economic impact assessments on the
**cumulative effects** of G20 policies and other
regulatory initiatives – domestically and across borders
– further reinforcing the nexus of stability, economic
growth, and productivity, essential to building a
competitive environment where firms of all sizes can
conduct business across a global level playing field.

An **international principles-based implementation**
**process** for Sustainability should be introduced,
possibly based on a **Multi‐Party Implementation**
**Agreement (MPIA)** model for regulatory cooperation,
as suggested over the years by the B20. This would
also provide opportunities in multiple directions: it
would allow **active participation from the industry**
in the standard-setting process, as well as active
cross‐border mutual recognition.

---

Harmonised policy implementation plays an essential
role in mitigating any unintended consequences of
policies and regulations. as highlighted by the
findings outlined by the FSB in respect of crossborder cooperation following the 2008 financial crisis
[FSB 2009]. To return to growth and stability globally
following the Covid-19 pandemic, a new
international dialogue system should formalize the
current ad hoc approach to consultation and
discussion and seek to address upfront possible
unintended consequences from conflicting
standards’ objectives.

## Action 1.2 Efficiency mechanisms like the GVC passport

There are a number of options, leveraging on best
practices to reduce regulatory obstacles to GVC
integration and to strengthen trade finance. For
example, we can leverage the work started in 2020
by the B20 and Business at OECD under the Saudi
Arabian Presidency proposing the “**GVC Passport**”
concept [B20-BIAC, 2020], which could provide an
authenticated, authoritative, verifiable financial
fingerprint of a given entity, enabling it to operate
within GVCs without the need to reproduce the same
documentation on multiple occasions, nor to
undergo duplicative verifications.

The "GVC Passport" would allow a firm to be
recognized as a legitimate business partner,
compliant with the credit and financial regulations
relevant to the GVC it operates in. The concept is
envisioned as a **set of Finance related verifiable**
**credentials to be cryptographically encrypted and**
**verified** This would help ensure that firms comply
with the rules, whilst potentially reducing regulatory
burden through a single authentication process that
<u>can be verified</u> throughout the GVC. Critical is the
fact that the GVC Passport would not be an
additional protocol to follow**,** but it would ensure
that it has to prove <u>only once</u> that it meets them
through a single authentication that <u>can be verified</u>
throughout the GVC.

Critical is the fact that the “GVC Passport” **would not**
**be a new document to fill**, but it would rather
**compile and recognize certifications already**
**received**, to avoid the need to fulfil them again in the
next country or transaction. Such certifications would
be kept up-to-date with the latest validations or
relevant regulations, and could be verified real-time by
the authorized parties, hence avoiding firms having to
reapply, update or run through additional bureaucratic
steps.

The “GVC Passport” is a concept intended as an
aspirational long-term vision to enable firms to
participate in and take full advantage of GVCs,
minimizing burdensome and too often duplicative
processes, strengthening compliance, increasing
traceability **across the GVC**; thereby also benefiting
firms’ cash flows (e.g., netting of payments), reducing
the need for leverage and thus supporting wider
economic activity over the longer-term in the postpandemic environment. Under the **2021 Italian**
**Presidency**, the B20 Italy made **a concrete step**
**forward** showing how to apply this concept in the
Trade Finance space, reported in a broader-scope
paper issued by B20, Business at OECD and IOE [B20,
BIAC, IOE, 2021].

The **Sustainability agenda offers an opportunity** to
put in practice the GVC passport concept for
Sustainability-linked investments, in order to help to
guarantee smooth access to funds and ensure the
process is equally efficient throughout the supply
chain. If a framework like the GVC passport concept is
put in place for Sustainability investments, it could
both accelerate the implementation of the agenda,
and also become a concrete example of how the
framework can work in practice, and possibly become
a blueprint for other sectors.

---

## Recommandation 2

**Productivity – G20 leaders should create pro-**
**grams to enable firms’ access (and expertise) to**
**data and digital platforms that facilitate their**
**participation in GVCs and to supporting efficient**
**working capital deployment**

## Action 2.1 Counterparty identification and Data verification

Similar to Trade Finance [B20-BIAC-IOE, 2021], in
order to make mechanisms like the GVC passport
effective, work needs to be based on three pillars,
which **combined can offer a simple**, though
powerful, **enabling frame-work**:

Digital technologies related to **data** management
and utilization must be at the heart of this proposed
concept: promoting <u>data verification</u> rather than
data sharing as a worldwide standard is crucial. **Data**
**is** <u>the</u> **key asset of a digital economy**: it is
frequently thought that sharing is required to enable
activities such as accessing funds. In reality,
particularly on the compliance front, most often what
is needed **is to confirm**, i.e., verify, that the
information provided is correct. Business and
government have a shared interest in identifying
who controls corporate entities, that is knowing who
is the ultimate beneficial owner. **Investors must be**
**able to quickly and reliably identify** the entity and
the entity's subsidiaries in which they are
(15)
investing. Let us imagine a British investor who
plans to invest in a Danish solar energy company.
Would this investor's investment decision change if
this Danish solar energy company's subsidiary ran
nuclear power stations in Germany or another
subsidiary ran a copper mine in Chile? How can this
investor access the relationship information on the
headquarter company and subsidiaries through a
single data source, in an easily consumable and
machine-readable format? A similar scenario can be
extended to financial institutions.

Imagine that this Danish solar energy company applies
for a climate-linked loan with a financial institution.
How can this lender analyze the entity's eligibility for
the type of loan and make its ESG risk assessment in
an easy and transparent way? The ultimate objective
of the information relating to the firm is the “final
outcome”, i.e., **the confirmation of the firm’s**
**compliance**, not necessarily the full data history. A
**verifiable credential** is cryptographically shared
between peers at the edges of the GVC network to
ensure underlying data is protected and not itself
shared. To ensure data protection and safeguard
business confidentiality, **it is important to design**
**platforms where the underlying data itself does**
**not need to be shared, but where the digital**
**infrastructure allows for data to be nonetheless**
<u>verified</u> to ensure that the reported information is
correct and compliant with the relevant requirements,
starting with unique and unambiguous identification
of the legal entities.

Such data verification solutions already exist and are
increasingly used for example via the **Legal Entity**
**Identifier (LEI),** a worldwide unique identifier
standard. Being open and non-proprietary, the LEI
facilitates more effective counterparty identification
and verification on a global scale. Indeed, the LEI
would reduce one of the biggest challenges when it
comes to sustainability-related information to endinvestors: the ability to identify and compare the entity
and the entity's subsidiaries in which investors are
investing across national borders effectively, through a
single, reliable and publicly available source in a
machine-readable and digital format.

The Network for Greening the Financial System
<sup>(16)</sup>
(NGFS) highlighted in its 2021 progress report
[NGFS, 2021] that bridging data gaps is essential to
overcome the lack of data reliability and comparability.
In this context, the report stressed the **need for**
**common identifiers**, including the LEI, in order to link
financial and non-financial information. The report
highlighted that “**Common identifiers are crucial for**
**linking financial and non-financial information,**
**which are often reported separately.**

---

In this context, the availability of unique
identifiers at the company level (such as LEIs) and
the security level (such as an international
securities identity number, ISIN) would allow the
consistency of individual information to be
checked across different data providers.”
**Combining** the LEI with financial instrument
identifiers can be a powerful tool to enable
transparency relating to sustainable investment
activity. On the financial instrument side there
are several open standards available, which
between them provide good coverage, including
as mentioned above, the ISIN, and also the
Financial Instrument Global Identifier (FIGI), an
open standard of the Object Management Group,
which can augment and fill in gaps in ISIN
coverage.

On a more granular level, in the timber industry,
the Indonesian Ministry of Environment and
Forestry (MoEF) launched the Timber Legality
(17)
Verification System (SVLK), a multi-stakeholder
tracing system, which seeks to certify the legality
of timber harvested from Indonesian forests. An
independent body, Lembaga Verifikasi Legalitas
Kayu (LVLK), acts as the verifier, and SVLK also
serves as the basis for licensing direct timber
exports to the EU under the Voluntary
Partnership Agreement (VPA). With the LEI,
investors can access both the data regarding the
legal entities themselves and the specific
relationship data that would allow them to
compare different entities, regardless of their
(18)
legal forms or jurisdictions of formation. The
LEI can act as a data connector allowing users to
link and verify data across sources easily (possibly
linked also to granular data as per the
Indonesian example above), investors or financial
institutions can do more in-depth research on an
entity's goals, strategies, tangible and intangible
assets, values, and verify the legal entity and its
subsidiaries in a seamless way. Additionally, if
sustainability reporting is on a standalone
document to a company’s annual report, the use
of the LEI permits to connect the separate
documentation ensuring accessibility,
connectivity, consistency and transparency, which
can possibly benefit also from the work by GS1,
been transforming and simplifying complex
supply chains.

Therefore for efficiency solutions, as envisioned in the
GVC Passport concept discussed so far, data
verification capabilities are vital. Additionally, such
solutions are well positioned beyond the GVCs and
investments, and are likely to be at the heart of the
ESG frameworks.

**Action 2.2 Materially improve documentation flow**
**by making digital documents accepted across**
**legislative frameworks**

**Legally recognizing digital documentation**, which
would allow for a greater use digital documents in
investment processes, thereby helping reduce frictions
(19)
as well as both monetary and environmental costs.
Also, **paper-based rather than paperless**
**Sustainability Agenda investments and processes,**
**is a big contradiction.**

The challenges relating to the acceptance of digital
documentation posed by current legislations
worldwide become evident when moving from general
enabling concepts to more concrete legal implications.
A survey of 128 countries conducted by the UN [UN,
2019a] on measures related to trade facilitation and
paperless trading showed that only about 36% of
countries have implemented measures related to the
cross-border exchange of electronic data and
documents, substantially lower than that of other
groups of measures. As we have highlighted for trade
activities in our 2021 paper on Trade Finance [B20-
BIAC-IOE, 2021], only a handful of countries (e.g.,
Singapore) fully recognize digital trade documentation
in their legislation. Domestic legal frameworks in most
countries do not recognize electronic signatures as
valid, or require extremely cumbersome constraints to
affirm the legal validity of electronic documents. By
(20)
way of example, the EU eIDAS Regulation defines
**three levels of electronic signature**: “simple”
electronic signature (SES), Advanced electronic
signature (AES) and Qualified electronic signature
(QES).

<sup>(16)</sup>The NGFS is a worldwide group of central banks and supervisors that aims to foster the development of environmental and climate risk 
management in the financial sector and to channel mainstream finance towards sustainable activities to support the green transition.
<sup>(17)</sup> https://silk.menlhk.go.id/index.php/info/vsvlk/3

<sup>(18)</sup> Each LEI record provides the entity name(s) in their original character sets in addition to transliterations..

<sup>(19)</sup> Digitalizing paper documents would eliminate the need for printing, handling, storing and transporting typically hundreds of pages 
amongst numerous parties, thereby also removing the corresponding carbon emissions.

<sup>(20)</sup>Regulation (EU) 910/2014 available at <u>https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2014.257.01.0073.01.ENG</u>

---

The requirements of each level are built on those of
the previous level. If the validity of an AES is
questioned, it falls on the signatory to prove its
validity; only a QES is considered equivalent to the
written form. Obtaining a QES, however, requires the
use of both signer validation and multi-factor
authentication which makes it unsuitable for simple
routine uses. As such, many players, especially
MSMEs, who need easier and faster solutions, are
discouraged from using electronic signatures
altogether and rely instead on paper-based signing
processes. signing processes.

**Acceptance of digital documentation is of**
**paramount importance** for GVCs and investments
spanning across borders: where an investment is
originated in one country, in which digital
documentation has been accepted as legally valid,
and progressed in another, where it may not be
(21)
legally recognized, leads to such investment or
transaction possibly halted or at best delayed.
By limiting physical interactions, the COVID-19 crisis
helped progress the recognition of digital
transactions, which can improve today’s paper-based
documentation processes, providing strong gains in
efficiency. Firms, and especially MSMEs, had to
enhance their digitalization to operate throughout
the pandemic; governments, on their end, had to
update the relevant regulatory environment
adequately for firms to operate. By way of example,
in the United Kingdom, the filings which could be
made to Companies House via WebFiling increased
(including the ability to request a 3-month extension
to file accounts). Coupled with faster processing
times, allowed for, prompted a shift towards online.
It is therefore key **to enhance existing laws to**
**accommodate for digital documentation** ensuring
that the lessons and advances emerged during the
pandemic are not lost; the risk is palpable as many
have been put in place under “emergency” legislations.

The aim going forward is for national laws worldwide
**to recognize systemically** electronic documents and
data in judicial or administrative proceedings.

It is well understood that this cannot change
overnight, but reforms can be undertaken in a number
of ways, from adopting new legislation or through
government decrees. Indeed, **Sustainability offers a**
**prime opportunity,** i.e., to allow or even require the
use of digital documentation and data to access
sustainability-linked funds and investments by
implementing dedicated legislation and amending
existing **specific procedures to include digital**
**documentation as valid records**. Jurisdictions need
to **mutually recognize** such documents and relevant
credentials as valid titles (e.g., vLEI): they need to
provide legal certainty to electronic transactions and
electronic instruments. This does not mean that all
electronic documents must be accepted as evidence
always, but only that **they should not be rejected**
solely because of their electronic nature. With digitized
documents, for example, the use of digital platforms
could improve the efficiency and accuracy of the
workflow by making the entire investment process
history more transparent. If all the relevant documents
are digitalized, smart contracts can enable exchanges,
payments and other transactions to occur
automatically. **It is clear that technology alone is not**
**enough**: **harmonized legislative reform and**
**common standards** (from an invoice, to a receipt, to
identity and security) are **vital enablers** of trade
digitization. Recently the **WTO and WEF** in a joint
report [WTO-WEF, 2022], referring to the GVC
Passport concept, highlighted that without a unique
and globally harmonized identifier, finding information
about a small business in a sea of metadata is
difficult, if not impossible [Patel & Ganne, 2021]. LEIs
make this process workable and help to realize the
potential of making finance more accessible for
MSMEs. The LEI scheme now has more than 2 million
allocated codes, but further take up needs to be
encouraged.

<sup>(21)</sup>This can be particularly challenging in some civil law jurisdictions such as Spain and Italy, 
which still require the notarization of particular documents for them to be considered validly executed.

---

## Action 2.3 Leverage digital technologies

**Digital platforms** built on Distributed Ledger
Technology (DLT), properly structured to satisfy
the regulatory and compliance requirements, **can**
**facilitate both the access to financing** set to
meet the Sustainability agenda, and the
transparency required by Governments and
investors, by providing a **transparent, traceable,**
**immutable, reliable and auditable infra-**
**structure** to seamlessly and securely exchange
cryptographic keys. It is therefore paramount that
adequate requirements and encryption mechanisms are set and implemented consistently across
borders to help ensure that platforms built on
such technologies can be properly trusted and
that cybercrime prevented; thereby also taking
forward the Bali Fintech agenda (22). Structured
with the required access permissions, a digital
platform can be used as infrastructure to identity
attestations, providing participants with proof of
authenticity and origin for the required
documents. For example, incorporating an LEI into
digital certificates and document e-signature
processes could provide an additional layer of
verifiable proof, since the LEI is a global secure
mechanism that provides reliable data on
organizational identity. (23)

Such a framework offers an efficiency opportunity
to **maximize the use of existing data** and to
ensure **transparency and traceability**, while
protecting participant data and avoiding the
unauthorized sharing of underlying data and
confidential information. As such, a permissioned
ledger can **improve operational efficiency**
enabling a safer, cheaper and more seamless flow
of funds between digitally interconnected trading
partners, compared to loosely connected
participants of traditional processes. Finally, more
reliable data contributes to improved quality of
**credit risk assessments** [ICC, 2019], further
benefiting the firms' access to finance. Additionally, they can also offer tax administrations an
opportunity to streamline their approach to
compliance, but to get the full benefits of these
new technologies will require an unprecedented
cooperation with the business.

Notably, the required technology does not need to
simply encompass wide storage systems, but rather
help organize data and eliminate data silos, with the
objective of creating trusted sources of
standardized information: ultimately creating
platforms containing much richer datasets than
those existing in any one system today to be used
by all GVC participants. The reconciliation of data
through common digital platforms, such as
blockchains, can each, independently, contribute to
increased efficiencies in record keeping both within
organizations and across firms and GVCs. Data itself
needs to be up-to-date, possibly in real time and
should offer a degree of granularity, which allows it
to meet the widest possible set of requirements. If
they were to work together in a standards-based
framework, the sum would be much greater than
their parts. If the funds could be operated on the
platform itself, helping firms to improve their
working capital. Such platforms do exist today.

C2FO, Taulia, Tradeshift PrimeRevenue, Bluevine are
examples of such global platforms where
technology can support the collaboration across
GVCs and increase the available supply of working
capital, For example. more than 1.75 million
companies around the world are on the C2FO
platform, which has supplied more than $200 billion
in funding to its users.

**How does it work**: large enterprises load their
unpaid invoices – that is, their accounts payable –
into the platform. Their suppliers (i.e. the companies
that are owed money) are then invited via the
platform to accelerate their invoices in exchange for
a small discount. Doing so allows them to access
much-needed working capital faster.

Suppliers, which tend to be MSMEs, but may also be
larger organizations, are able to receive payment in
a matter of days instead of weeks and months. (In
recent quarters, C2FO has been able to accelerate
payment by an average of 31 days, figure 7). The
discount is usually less than what it would cost to
borrow money from a traditional lender. Even
better, the supplier doesn’t have to complete any
cumbersome loan paperwork, KYC or other
challenging regulatory burdens.

---

**This real-life example shows that when putting in**
**practice such a framework with the characteristics**
**highlighted, it delivers benefits to all parties,**
**making it a true win-win.**

## Economic Growth – G20 Leaders should leverage

**Figure 7 – Working Capital flow speed (C2FO analysis)**

Finally, not to be underestimated, there is a strong
need for **capacity and infrastructure building** to
boost paperless use across countries and across firms.
In the main MSMEs may lack access to the platforms
or have to pay high usage rates. Even with proper
infrastructure and access, MSMEs may not have **the**
**digital skills** to use new IT systems or services or be
able to maximize the advantage of going paperless.
Indeed, a joint IOE-ILO-KAS research [IOE, 2021] shows
that after considering external factors, the major
impediments for MSMEs to tap into the possibilities of
digitalization are the lack of digital infrastructure and
insufficient digital capabilities.

## Recommandation 3

<u>Economic Growth</u> **– G20 Leaders should leverage**
**the Sustainability Agenda’s funding and**
**investments to support GVC ecosystems**

While the actions outlined in terms of Productivity
(section 2b) deliver positive impacts on their own, it
is their **combination** that could make a systemic
impact. **Benefits** of these proposed actions are
reaped by all stakeholders-**private and public**-
and go beyond overcoming bureaucratic obstacles
and firms’ burdens in operating through GVCs or
improving the cash management of a single entity. **If**
**implemented as part of the Sustainability agenda,**
**this combination would create a systemic**
**virtuous cycle which would benefit the wider**
**economy and employment across all countries**
**the GVCs spans through**. Indeed, it would allow to:

**1. Raise efficiencies** across funding processes
and help simplify burdensome requirements
such as in KYC and AML. Firms would not need
to duplicate laborious compliance checks, but
could instead draw on already verified
documentation, which would reduce time and
costs.

**2. Reinforce structural support to firms’**
**working capital, or even netting of**
**payments**, hence improving timeliness of
(25)
payments. This would bring actual cash into
firms, supporting their needs without having to
build up further leverage or having to resort to
public support. Additionally, it will reduce
arbitrage at the periphery of trade finance by
firms encountering financial difficulties and
masking their mounting borrowings.

**3. Systematically gathering consistent data**
which in turn can support public
administration, making compliance simpler,
more consistent, and less costly, as well as
**increasing transparency** and especially
**“traceability”** of transactions. This can help
tackle global challenges such as money
laundering and financial crimes.

---

By enabling such a framework, whose components
already exist, **Governments** can make a tangible
difference towards supporting a sustainable and
inclusive **long-term economic growth**, focusing on
efficiency upturns, rather than committing more
funding resources. A **real-world example of how**
**this framework can deliver real and measurable**
**benefits** is offered by the abovementioned C2FO
platform. The company estimates that its platform
has helped to **create 57,000 jobs** over the past eight
years, assuming that 10% of every dollar accelerated
would be directed toward a small business’s payroll,
based on research from the National Bureau of
Economic Research. The platform’s users have
achieved other **significant cost savings**, too,
including an estimated US$ 1.2 billion in financing
costs because they could reduce or avoid borrowing
from traditional lenders. **Larger businesses have**
**benefited** too, saving roughly US$ 1 billion through
early payment discounts. In summary, such a
powerful combination would allow Sustainability
agenda investments to become **“sustainable GVC**
**ecosystems”** built on trustworthy and safe processes
benefiting all players, including paving the road to
enhanced MSME participation in GVCs.

Moreover, reliable certification will contribute **to**
**financial crime prevention**, such as money
laundering or terrorist financing, though a key
**ingredient will be having private and public**
**cooperation**.

Importantly, it is worth clarifying that such "GVC
ecosystems" are agnostic to the nature of the
technological solution itself (e.g., blockchain versus
other digital solutions). However, it is important to
promote uniform principles and practices at the
international level to accelerate the digitalization of
trade finance and make exchanges smoother, easier
and less costly through digital platforms in order to
enhance global trade. Platforms themselves need to
be safe, transparent, innovative, easy to access, and
recognized on a global scale.

## Infrastructure Investments – a case in point

A perfect case in point is strategic initiatives like the
**infrastructure investments critically needed to**
**meet the Sustainability** agenda, which will advance
pipelines, improve their transparency, and be a critical
lever to support economic recovery post the Covid-19
pandemic. Indeed, at the COP26 it was pledged for
public funding to act as the cornerstone investment to
**crowd in private capital**, in order to develop
infrastructure, so critical to the transition to
sustainability.

**Working on the three axes**, it is critical that
**regulations** are designed to incentivise long-term
investments such as those needed to fund
infrastructure projects. Some pieces of regulation,
instead, hamper infrastructure finance, such as IFRS9,
an example of a policy that risks nullifying its intended
effects. To secure the long-term sustainability and
needed deployment of network infrastructures, policy
frameworks should ensure all market actors benefiting
from the digital transformation **assume their social**
**responsibilities** and make a fair and proportionate
contribution to the costs of running and rolling out
such networks. On the **productivity** side, with firms
able to operate their invoices (towards both private
and public players) on digital platforms increases their
working capital, releasing free cash flows.

This in turn benefits the smaller players in the GVC,
and on a systematic scale, propels benefits in the
**wider economy**, including increasing employment.
In order for the virtuous cycle generated by the
“propeller” to operate effectively, delivering its
systemic benefits from infrastructure investments
down to wider employment and growth, a critical role
is played by the GVCs, and within those by MSMEs,
more vulnerable following the pandemic with
increased debt levels. For this reason, fostering their
access to capital, is fundamental. **These savings**
**represent an invaluable asset that needs to be**
**mobilized towards global economic growth,**
particularly in supporting MSMEs, the weakest link in
the chain.

---

**Infrastructure investments are a natural channel**,
which also benefits the Sustainability agenda. In this
context, digital infrastructures are critical, as they are
considered essential enablers of the energy
transition. It is therefore of great importance to
update regulatory frameworks and implement
appropriate policies to foster private investment and
accelerate the deployment of high-capacity
networks. Hence, it is recommended that policymakers ensure that the effective supportive
measures put in place to aid firms during the
pandemic are progressed in order to help ensure the
mobilisation of private capitals towards infrastructure
investments, which then can filter down to MSMEs
and the wider economy.

In a nutshell, if we ensure that the appropriate
actions are put in place in a synergistic way**,**
**infrastructure investments will not only**
**contribute to the Sustainability agenda, but will**
**also “propel” benefits, ultimately contributing to**
**sustainable and inclusive growth, thus, exiting**
**the “low productivity trap, ”**for firms of all sizes,
filtering down from larger corporates to MSMEs,
though the GVCs.

---

# ACKNOWLEDGEMENTS

Work on this publication has been led by **Gianluca Riccio**, CFA, who is the Vice-
Chair of the Business at OECD Finance Committee, and member of both the B20
(26)
Finance and Infrastructure Taskforce at the B20 Indonesia. The publication
benefited from the substantial contribution of the **Business at OECD Finance**
**Committee**, the **B20 Indonesia Secretariat**, **Burcu Mentesoglu Tuncer** from
**GLEIF Matthias Thorns** from **IOE**, and, **Jacobo Ramos** from the Business at
OECD Secretariat, as well as contribution, guidance and support of (alphabetical
order):

**From the B20 and the G20**

**Mr. Ṣenol Aloglu**
Chief Executive Officer and Member of the Management 
Board, **Credit Europe Bank**, Netherlands

**Mr. Giuseppe Arleo**
Coordinator of the Obervatory on NextGenerationEU of 
Competere.eu, Italy

**Mr. Sergio Arzeni**
President, International Network for SMEs **(INSME)**

**Ms. Lucia Cusmano**
Deputy Head of the Entrepreneurship, SMEs and Tourism 
Division, **OECD** Centre for Entrepreneurship, SMEs, 
Regions and Cities)

**Mr. Marco Felisati**
**B20 Italy** Sherpa

**Dr. Matthew Gamser**
Chief Executive Officer, **SME Finance Forum,** International 
Finance Corporation **(IFC)**

**Ms. Flora Hamilton**
Director Financial Services, **Confederation of  British** 
**Industry (CBI),** United Kingdom

**Ms. Allie Harris**
**ISO** TC68 Canada Chair

**Mr. Raffaele Jerusalmi**
Senior Advisor **Pictet,** Switzerland. 
Former Board Member London Stock Exchange Group and 
Chief Executive Officer, **Borsa Italiana,** Italy

**Mr. Erol Kiresepi**
Chairman and Chief Executive of **Santa Farma**
**Pharmaceuticals,** Turkey; and Honorary President, 
**International Organization of Employers (IOE)**

**Ms. Miriam Koreen**
Senior Counsellor on SMEs, **OECD** Centre for 
Entrepreneurship, SMEs, Regions and Cities

**Mr. Alexander R. Malaket**
President, **OPUS Advisory** Services International Inc., 
Canada

**Ms. Emma Marcegaglia**
Chair and CEO **Marcegaglia Group**, Italy; and Chair of 
the **B20 Italy** 2021

**Ms. Elena Morettini**
Global Head of Sustainable Business, **Globant,** Argentina

**Ms. Manuela Nenna**
Executive Director for Italy, **European Bank for** 
**Reconstruction and Development** (EBRD)

## Reconstruction and Development (EBRD) Mr. Giuseppe Arleo

**Ms. Veronique Ormezzano**
Head of Group Prudential Affairs, **BNP Paribas,** France

**Prof. Jeffrey Owens**
Director of Global Tax Policy Centre, **Vienna University** of 
Economics & Business, Austria

**Mr. Fabio Pompei**
Chief Executive Officer, **Deloitte Central Mediterranean** , 
Italy

**Ms. Lida Preyma**
Director, CM Strategic Initiatives**, BMO Capital** Markets, 
Canada

## Canada Dr. Matthew Gamser

**Mr. Radju Munusamy**
Policy Manager of the Finance and Infrastructure 
Taskforce, **B20 Indonesia**

## Taskforce, B20 Indonesia Ms. Flora Hamilton

**Mr. Colin Sharp**
Chief Sales Officer, **C2FO,** United States

**Mr. Stephen Shelley**
Group Chief Risk Officer, **Lloyds Banking Group,** United 
Kingdom

## Kingdom Mr. Raffaele Jerusalmi

**Ms. Sherly Susilo**
Policy Coordinator and Policy Manager of the Trade and 
Investment Taskforce**, B20 Indonesia**

**Ms. Ghada Teima**
Lead Financial Sector Specialist**, World Bank Group**

**Mr. Richard Young** 
Chair of IST/12 Financial Services,  BSI,  United Kingdom

**Mr. Stephan Wolf** 
Chief Executive Officer, Global Legal Entity Identifier 
Foundation **(GLEIF),** Switzerland

**Prof. Salvatore Zecchini**
Professor, **University of Rome** Tor Vergata; Chair of **OECD**
Informal Steering Group on SMEE Finance; Chair of Team 
of Specialists on Innovation, **UN-ECE**

---

# LIST OF ACRONYMS

**AES** Advanced Electronic Signature
**AML** Anti-Money Laundering
**BAFT** Bankers’ Association for Finance and Trade
**BIAC** Business and Industry Advisory Committee
**CCF** Credit Conversion Factor
**CFT** Combating the Financing of Terrorism
**DLs** Distributed ledgers
**DLT** Distributed Ledger Technology
**EBIDA** Earnings Before Interest, Depreciation and 
Amortization
**ESG** Environment, Social and Governance
**EU** European Union
**FSB** Financial Stability Board
**GLEIF** Global Legal Entity Identifier Foundation
**GDP** Gross Domestic Product
**GDPR** General Data Protection Regulation
**GPFI** Global Partnership for Financial Inclusion
**GVCs** Global Value Chains
**ICC** International Chamber of Commerce 
**IFC** International Finance Corporation
**IFRS** International Financial Reporting 
Standards 
**IFSA** International Financial Services Association 
**ILO** International Labour Organisation
**IRB** Internal Ratings-Based
**ISO** International Organisation for 
Standardisation
**KYC** Know Your Customer

**MPIA** Multi-Party Implementation Agreement

**OECD** Organisation for Economic Co-operation 
and Development

**LEI** Legal Entity Identifier

**MDBs** Multilateral Development Banks

**QES** Qualified Electronic Signature

**SDGs** Sustainable Development Goals

**SME** Small and Medium-Sized enterprise

**UN** United Nations

**WCO** World Customs Organization

**WEF** World Economic Forum

**WTO** World Trade Organization

---

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---

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