That signalled an end to the emergency investment policymaking that characterized the first year of the pandemic; however, the crisis still affected the nature of the measures.

Four new countries adopted FDI screening mechanisms (including one developing country), and at least twice as many tightened existing mechanisms.

Investment facilitation measures constituted almost 40 per cent of all measures more favourable to investment, followed by the opening of new activities to FDI (30 per cent) and by new investment incentives (20 per cent).

Sanctions and countersanctions affecting FDI to and from the Russian Federation, Belarus and the non-government-controlled areas of eastern Ukraine constituted 70 per cent of all measures adopted in Q1 2022.

They included the conclusion of new-generation megaregional economic agreements and large-scale terminations of old-generation bilateral investment treaties (BITs).

In 2021, countries concluded 13 IIAs and effectively terminated at least 86 IIAs, bringing the size of the IIA universe to 3,288.

Most of the cases initiated were brought under old-generation IIAs.

Countries rely on a variety of fiscal incentives to attract investors to priority sectors or regions.

Although the governance of incentives varies greatly across countries, on average, 70
per cent of incentives are allocated on the basis of discretion, criteria not available to the public or negotiation with individual investors.

Most IIAs do not exclude taxation from their scope, which means that they cover a wide range of tax-related measures, whether of general or specific application.

BEPS Pillar II is expected to discourage MNEs from shifting profits to low-tax countries and to reduce tax competition between countries.

They now hover at about 25 per cent in both developed and developing countries.

As a result, the actual tax rates faced by MNEs on their foreign income are about 15 per cent, significantly lower than the headline rate.

First, MNEs will reduce profit shifting, as they will have less to gain from it, and will  pay host-country tax rates.

Offshore financial centres stand to lose a substantial part of CIT revenues collected from MNEs’ foreign affiliates.

The baseline scenario places the potential downward effect on global FDI at about -2 per cent.

However, this will not occur automatically. In a world of smaller tax rate differentials, countries stand to gain more from improvements in other investment determinants – including those related to infrastructure and the regulatory and institutional  environment.

The mechanism that has been devised for implementation is such that it is sufficient for a relatively limited number of investor home countries (e.g. G20 and OECD members) to apply the top-up tax for the effects to become almost universal.

Fiscal incentives are widely used for investment promotion, including as part of the value proposition of most special economic zones.

Some fiscal policy options to promote investment remain, including amplifying the benefit to investors of the so-called substance-based carve-out; shifting to incentives that are less affected by Pillar II; or reducing taxes that are not covered by Pillar II, to the extent that they have a bearing on investment decisions.

If host countries are prevented by IIAs and their ISDS provisions from applying top-up taxes or removing incentives, the tax increase to the global minimum will accrue to home countries.

Reduced competition from low-tax locations could benefit developing economies.

Therefore, it will be key for developing countries to strengthen cooperation and technical capabilities to ensure effective participation in the process of  negotiating the final shape of the reforms.

• Vastly scale up technical assistance to developing countries to support BEPS implementation and investment policy adjustment.
• Adopt a multilateral solution to remove implementation constraints posed by IIAs and mitigate ISDS risks.
• As a stopgap measure, establish a mechanism to return any top-up revenues raised by developed home countries that should have accrued to developing host countries, but that they were unable to raise because of capacity or treaty constraints.

These products include sustainable funds ($2.7 trillion), green bonds (over $1.5  trillion outstanding), social bonds ($418 billion), mixed-sustainability bonds ($408 billion) and sustainability-linked bonds ($105 billion).

Net investment reached $557 billion, up 58 per cent from 2020 and more than three times the 2019 level.

The increase in sustainable bond issuance was especially visible in emerging markets.

That is because most of these products are self-labelled and there is a lack of consistent standards and high-quality data to assess sustainability credentials.

In 2021, public pension funds held more than $22 trillion in assets, or almost 40 per cent of global pension fund assets. The assets of sovereign wealth funds grew to $11 trillion.

Making progress on ESG reporting by these funds will require strengthening national regulations.

The number of exchanges with written guidance on ESG disclosure for issuers grew to 63 at the end of 2021.

The number of exchanges engaged in annual “Ring the Bell for Gender Equality” events has grown from just 7 in 2015 to over 110 in 2022.

Exchanges, regulators and policymakers should monitor the emissions of companies listed on public markets to ensure an orderly transition.

including through intensive training of their issuers on climate disclosure reporting.

By the end of 2021, 35 countries and economic groupings – both developed and developing – had 316 sustainable finance-dedicated policy measures and regulations in force, more than 40 per cent of which were introduced in the last five years.

The International Organization of Securities Commissions (IOSCO) and the International Financial Reporting Standards (IFRS) Foundation are now leading a global effort in consolidating the major ESG reporting standards, effectively reducing the fragmentation that has persisted over the past decade.