The Summit for a New Global Financing Pact, to be hosted by President Macron on 22–23 June, will address many important issues surrounding an enormous global challenge: how to scale up climate finance to the levels needed to achieve net zero and protect vulnerable countries from the unavoidable impacts of climate change.
According to one estimate, $2.4 trillion per year will be needed in low income and developing economies (not including China) by 2030. The Macron summit will seek to build a consensus on how to increase both the volume of public international finance and the speed with which it is delivered, including through reform of the multilateral development banks.
Other important questions are on the agenda. How can available public finance be more effectively leveraged to crowd in more private finance? And how can policymakers account for the threat that debt distress in low-income and developing economies could block required flows of climate finance?
A vital but neglected question
But one question does not yet have the profile it urgently deserves – both in preparation for the Paris summit and subsequent international meetings: how to ensure that increased, speedier climate finance actually does what it is intended to do in terms of adaptation and mitigation and is not lost as a result of weak accountability, lack of transparency, poor participation and corruption?
There is only one chance to prevent climate change from having catastrophic effects on the planet. If the current effort to scale up effective climate finance fails, there won’t be a second opportunity.
Forthcoming estimates* suggest that $100 billion per year of climate finance is being lost through lack of accountability, transparency and participation. The same analysis states that every $1 spent on addressing these issues through ‘green accountability’ measures could generate up to $12 of additional impact from climate finance.
Many of those with experience of fighting corruption argue that the savings from better transparency and effective participatory accountability could be even higher.
This is because a substantial part of climate spending involves infrastructure projects (whether in power generation, irrigation, or sea defences) which are precisely the kind of investments most at risk from corruption. The spending also needs to take place in countries where governance is often relatively weak.
Strengthening accountability is also vital to encourage higher flows of private finance to emerging and developing countries, and firm up support for aid and concessional finance in donor countries.
Improving governance in climate finance cannot be addressed in isolation. The human suffering that is already being caused by climate change – as seen in Pakistan’s recent floods – means it is essential to increase the speed of disbursement for new climate adaptation and mitigation funds.
Improving accountability must therefore be achieved alongside faster disbursement. This will be a challenge but is not impossible.
It will require that a ‘smart’ approach is taken to strengthening accountability, but also a much stronger political commitment from, and level of trust between, both developing countries and developed country donors and MDB shareholders.
This is why the latter urgently need to rectify their failure so far to deliver on the 2015 commitment of $100 billion per year in climate finance by 2020. The latest estimate suggests the flow was still only $83.3 billion per year in 2020.
Financing ‘smart’ green accountability
Two practical issues now urgently need to be addressed.
First, what detailed package of practical ‘smart’ measures should be put in place to strengthen accountability and transparency?
Any package should draw on existing best practice for limiting corruption in major infrastructure projects and build technical expertise in developing economies.
But it also requires the adoption of innovative methods to ensure civil society participation and oversight of climate spending (such as those demonstrated by the World Bank’s Global Partnership for Social Accountability (GPSA)) and increasing transparency through the deployment of new technologies.
Second, how should ‘green accountability’ measures be financed on a sustained basis? They will require substantial resourcing but will pay for themselves many times over.
Yet IFIs and climate investment funds do not typically fund such capabilities or partnerships in recipient countries as part of their grant making, lending or equity investment.
Nor do private sector providers of capital, although the need to implement Economic Social and Governance (ESG) principles creates a framework in which this could happen.