How will climate change funds be collected, distributed, and accounted for at the international level? What mechanisms are needed to ensure that recipient countries manage these funds in ways that are transparent and responsive to the needs and input of the public? This Brief argues that gathering resources and managing resources need to be considered simultaneously. The next generation of climate finance needs to strengthen the national institutions that will implement mitigation and adaptation activities and ensure their transparency and accountability to citizens within countries, as well as to the international community.
The United Nations Framework Convention on Climate Change (UNFCCC) and the World Bank estimate that the international community will need to generate between US$170-$765 billion annually to address climate change. Although there is increasing agreement about the amount of finance required to adequately address climate change, there is still no consensus on how this money will be collected, distributed, and monitored.
A variety of existing and proposed finance mechanisms have emerged, including a range of institutions with different levels of accountability, transparency, and capacity on issues related to climate finance. These institutions also represent diverse governance structures in terms of decision-making for the disbursement of funds and accountability for their use.
A recent World Resources Institute report concluded that a new global deal on climate finance would be likely to redistribute power, responsibility, and accountability significantly between traditional contributor and recipient countries. This redistribution is both long overdue and necessary to ensure the national and local ownership – and thus the effectiveness – of mitigation and adaptation actions in developing countries.
- Developing countries see existing institutions as being dominated by donor countries in a way that undermines their legitimacy and performance and so want to create new institutions.
- Developed countries prefer reforming existing institutions as a more viable approach, citing these institutions’ proven capacity to deliver finance to target recipients.
- It is not yet clear whether the new finance mechanism will rely on intervening agencies, like the World Bank or UN agencies, to make allocation decisions, or whether countries will have ‘direct access’? to climate change funds.
- With direct access, recipient governments would bypass implementing agencies and enter into grant and loan agreements with a global climate change fund. Direct access arrangements would have to be designed carefully so as to avoid shutting out the poorest, most vulnerable countries that are likely to be least able to produce high-quality plans.
The core functions of a climate finance mechanism are: oversight, resource mobilisation and allocation, project cycle management, standard setting, technical advice and accountability.
- Responses to climate change will require fundamental adjustments to how economic development objectives are pursued, and many choices will incur significant environmental and social risks that need to be managed.
- Involving civil society organisations (CSOs) and the public in decision-making processes can improve outcomes. However, there must be access to comprehensive information and opportunities to participate.
- Donor practices should not undermine transparency. A global climate change finance institution can promote budget transparency but it should also incorporate procedures into its own operations to ensure that its finance flows are transparent.
- A climate change finance mechanism could place appropriate pressure on recipient countries to make information publicly available in cases where the government lacks the political will to be transparent. The mechanism could include a commitment to providing technical support to build the capacity of oversight actors, although reforms to accountability systems would require a domestic political consensus.
