New Finance for Climante Change and the Environment

Foreword

The world has moved beyond simple acknowledgement that climate change and environmental degradation pose significant risks to humanity and the planet’s ecosystems. In recognition of the increased vulnerability of billions of people, mostly in the developing world, Northern donors have pledged billions of dollars in new financial commitments. Those funds are to be delivered through no fewer than a dozen new environmental funding mechanisms seeking to mitigate these risks and to help the most vulnerable to adapt to coming societal and environmental changes.

Multitude of mechanisms

As we have watched these funds and financial mechanisms take form over the past year, it has become apparent that the new funds are not yet articulated in an overarching strategic framework. Nor have many of the funds’ sponsors articulated how they would comply with an agreed set of principles regarding effectiveness, equity and fairness, and efficiency between the global North and South. For example, while the intent may exist, there is no uniform call that the disbursed funds must be part of and integrated into an overall development strategy articulated by participating countries. Country ownership, harmonisation of donor activities, and mutual accountability of all partners have not been established as foundational principles of the funds. And methods to reduce transaction costs for recipients, improve donor-recipient dialogue and in-country effectiveness have not been articulated.

A rush to do good

It is hard to escape the impression that, in the rush to do good, the governments, and in particular donor governments, have risked overlooking many of the hard learned lessons and best practices that have been adopted for other development and environment purposes. This is profoundly troubling. The environment and vulnerable people depending on environmental goods and services for their livelihoods are in dire need of an overarching strategy framework to help guide, prioritise and harmonise the various mechanisms for funding environment and climate change. In equal measure, it is imperative that the funds ensure coherence with other dimensions of sustainable development and comply with accepted international principles on aid effectiveness. At the very time when the international community needs to bring together the disparate elements, institutions, conventions and agreements in a strategic framework, donor governments seem to have opted for a disjointed approach that encourages fragmentation of the global response, much to the detriment of effectiveness and efficiency.

Towards a productive global dialogue

WWF and the Böll Foundation strongly embrace the provision of new financial resources to address the urgent challenges of climate change, environmental degradation and their impact on vulnerable people. By commissioning this paper, New Finance for Climate Change and Environment, it is our hope that we can help clarify major recent developments in environmental and climate finance while contributing to a productive global dialogue about the opportunities and challenges offered by those new financial commitments. We hope that the research will broaden public understanding of and engagement in the global discourse about the more than one dozen new funds and their interplay with existing financial mechanisms. Together, we also plan to sponsor a number of public seminars and consultations in both northern and southern capitals to encourage active involvement of stakeholders and concerned parties in shaping the final institutional architecture for environment finance.

Need for a coherent, integrated architecture

We would like to point out several factors that shaped the final outputs of this study. It was our original hope that the research would provide information and reveal a consistent set of patterns that might suggest ways of harmonising and building mutually supportive relations among the new and existing funds. Such information and patterns, we hoped, would facilitate a dialogue among many stakeholders from which a more coherent, integrated architecture would emerge. We also hoped that this analysis would reveal how new financial commitments would also address some of the underlying questions of moral obligation and fairness between the North and South which, in turn, could guide overall financial commitments under a future post-Kyoto climate agreement. That aspiration has been frustrated by several factors, not the least of which is the fact that many of the new funds exist only as general statements of commitment. Yet to be defined for many funds are the real levels of financial commitment, operational strategies, implementation modalities, funding priorities as well as a host of specific operational guidelines. As a consequence, suggesting a coherent architectural blueprint must await another day. Moreover, the study has necessarily focused on existing funding mechanisms, notably the Global Environment Facility and the World Bank, that are already and are likely to remain central architectural pillars.

A dialogue among many stakeholders

A second consideration that has shaped the study is that, up to the present, many of the actual decision making processes regarding the new funds have unfolded in northern, donor countries with comparatively limited influence of developing country governments and institutions. As a consequence, many of the complex political issues that have shaped development of other financial mechanisms, such as the Montreal Protocol Multilateral Fund, the Global Environment Facility and, most recently, the UNFCCC’s Adaptation Fund, have not yet come fully into play. Among the longstanding issues that set the political background we would include: What constitutes “new and additional” funding as opposed traditional overseas development assistance? What are the “common but differentiated responsibilities” between north and south? What are the fairness and equity considerations that must underlie financial flows? Public discussion about the funds in developing countries has risen steadily in past months, including submission of specific proposals regarding the structure and operation global funding mechanisms. While the study recognises these underlying political issues and growing contributions and perspectives from developing countries, it is not able to offer a comprehensive analysis of how such considerations have shaped the emerging architecture.

We are deeply grateful to Gareth Porter and colleagues from the Overseas Development Institute (Neil Bird, Leo Peskett, Nanki Naur) for their persistence in ferreting out information from the many government offices and for their willingness to take on board and integrate into their analysis constantly changing updates about the funds. While we recognise that much of the information provided herein may change, we believe that their framework and analysis provide a sound foundation to track and respond to new developments as they unfold in coming months.

For WWF and the Heinrich Böll Foundation,

David Reed, Director, WWF Macroeconomics Program
Barbara Unmüßig, Co-President, Heinrich Böll Foundation