Governance of climate finance

The effectiveness of climate finance mechanisms in promoting low-carbon development and building resilience will depend on the capacity of national institutions to prioritise and coordinate effectively, and to monitor and ensure the distribution of costs and benefits does not reinforce vulnerabilities or exclusion (Sovacool et al., 2015). Through the UNFCCC, developed countries have committed to mobilising $100 billion annually through public and private sources by 2020. On a lesser scale, but still notable, developing countries such as Bangladesh, Gambia, Kenya and Rwanda have started mobilising domestic sources of finance (Rai et al., 2015). Another report showed that Ethiopia had dedicated 15% of its budget, or $440 million, to climate-related activities (Nakhooda & Watson, 2015). Climate finance governance is by nature an international affair, as donors have a role in providing transparency and coordinating effectively. But institutional capacity and arrangements, and willingness to track and disclose financial flows, are all key national governance issues. As with development assistance generally, recipient countries need to feel ownership of the prioritisation, management, and distribution of financial flows in order to gain sustainable political support and respond to needs identified through domestic planning processes (Brown et al., 2013).

A 2015 report by the Adaptation Finance Accountability Initiative (AFAI) found civil society can and should play an important role in ensuring adaptation finance is used accountably (i.e. reaches its intended targets), but enabling conditions are crucial (Terpstra et al., 2015). These include publicly available information related to adaptation finance flows and decisions, sufficient training of civil society organisations, adequate and ongoing public engagement opportunities, working relationships between governments and non-governmental actors, citizen collective action and willingness and ability of public officials to respond to civil society and citizens. Transparency in the budgeting cycle can improve monitoring of how adaptation finance is allocated to meet its intended target. The authors draw from Fox (2014), concurring that accountability requires willing government and non-governmental actors, and is most effective through multipronged strategies that intervene at different levels and through different means.

Multiple multilateral funding financing mechanisms provide climate finance, including the Global Environment Facility, Climate Investment Funds, the Adaptation Fund and, more recently, the Green Climate Fund (GCF), which is expected to be the main vehicle going forward (Nakhooda & Norman, 2014). Global climate finance reached $391 billion in 2014, owing to new highs in private renewable energy investment and an increase in public sector financing (Buchner et al., 2015). While the vast majority of climate finance is being directed towards mitigation, particularly renewable energy projects, once fully operationalised the GCF is expected to dedicate 50% of its funds to adaptation ‒ an increase from 24% currently (Trujillo et al., 2015).

Bird (2015) highlights important considerations in how climate finance is managed at the national level. These include the issue of the capacity and appropriateness of national budgetary processes for climate finance. Lack of guidance on integrating climate finance into budgets usually requires ministries of finance to play more active roles. Climate-related expenditures also must go beyond annual budget cycles (ibid.). When the line between development assistance and resilience-building becomes blurred, it can be difficult to identify climate finance. Potential alternatives include national climate funds and provision of direct access to multilateral funds.