Why and how to increase accountability and transparency in climate finance management?

pic_lp_fundsAt the UN Climate Conference in Paris, donors, private sectors and parties announced more than 10,000 new commitments and initiatives for contributing to mitigate the negative impact of climate change. Similar announcements had also made during previous COPs and other relevant global events.  This implies that Climate finance is getting bigger, through new commitments of multilateral, bi-laterals and of late private sector commitments.

However, there are serious complaints from ‘beneficiaries of climate funds’ and key stakeholders, involved in the management and channeling climate funds, that there are no clearly defined accountability in managing and utilizing the funds as well as a desired level of transparency is absolutely missing!  This has become now a major concern for donors and parties as climate financing needs to be coupled with the nationally determined contributions (NDCs) and in absence of a transparent and effective management structures (starting from planning to implementation and periodic monitoring, reporting and verification) there is danger of not meeting the basic objectives of the Paris Agreement.

A fundamental challenge in monitoring climate finance is that there is no agreed definition of what counts as ‘climate finance’.  In light of these controversies, more encompassing definitions of climate finance have been proposed. For example, Buchner et al., (2011) propose that ‘climate finance flows include both international (bilateral Official Development Assistance, Other Official Flows, export credits, and multilateral concessional and non-concessional flows) and private finance (carbon market finance, REDD+, Foreign Direct Investment and other private flows)[1].’

Irrespective of this definition issue, there are conflicting information/double counting on climate finance commitments. For instance, distinguishing the status of finance delivery is crucial for transparency as it provides information on whether pledges are being met, and whether finance is reaching recipients. Climate funds, however, do not use consistent terminology, and where they do, terms are not always interpreted the same way. This makes it difficult to accurately assess the delivery stage of climate finance both within and across the funds. A careful distinction between what countries pledge and what is actually deposited is essential to avoid over representing contributions.

Similarly, once funds are deposited, it may take time to develop a credible portfolio of projects worthy of funding. In turn, there is a crucial distinction between approving a project, and actually disbursing funding to allow its execution and realisation. There can often be long lags between the two stages. Reporting on disbursement is important to allow accurate accounting for how much funding has actually been spent[2].

Many developing countries lack systems to account for existing spend on climate change, making it difficult to track investments in climate change related activities and monitor financial flows at the local level.  National budgeting systems are ill-equipped to perform this basic function. The lack of information on budget flows makes it hard for citizens and independent monitoring groups to know whether funds are being used for their intended effect and reaching poor people.

Hence, there needs to be an effective Monitoring, Reporting and Verification (MRV) system that is applied to the public funding of climate actions, and this must draw on a list of specific information that allows the data to be classified and compared.

Any MRV system is incomplete if it is only based on reporting from countries providing finance. There needs to be cross-referencing with data from the countries or institutions that receive it. The UNFCCC therefore asks developing countries to add onto their national communications a report on the international aid they have received. As this financing can be attributed to multilateral funds, the same reporting requirements also have to be applied to them in order to monitor the whole flows. Multilateral institutions must therefore communicate twice, once as an institution receiving finance and one as a financing institution.

Institutions outside of the UNFCCC are not legally bound to communicate this information at present, but could be encouraged to use the UNFCCC notification formats in the future to allow data to be cross-referenced. It is notably the role of the Standing Committee created in Cancun (para. 112, Cancun Agreements, 2010) and operationalized in Durban.

The effectiveness of public expenditures depends heavily on broader participation and oversight mechanisms.  Independent data initiatives like the Open Budget Survey sponsored by the International Budget Partnership (IBP) can play a critical role in pursuing this goal.  Covering 102 countries, the 2015 Open Budget Survey (OBS) is the fifth round of a global assessment of budget transparency, public participation, and oversight institutions for national governments.   While 19 countries score well on budget transparency, the survey finds that a number of governments are backtracking on budget transparency commitments.  Nevertheless, we will need simplified ‘usable’ tools and systems for ensuring effective MRV on climate finance.

Keshav C Das

December 24, 2015

[1] http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7665.pdf

[2] Romani, M. and Stern, N. (2011). Delivering climate finance: principles and practice for funding the Fund. Grantham Institute, London UK.


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