Getting it together: institutional arrangements for coordination and stakeholder engagement in climate finance

Vyoma Jha, Centre for Policy Research (CPR)

Countries around the world are establishing arrangements to direct public finance and international investment towards climate change mitigation or adaptation. CPR and ODI have been working with researchers in Colombia, India, Indonesia, the United Kingdom and Zambia to understand how these work. While the economic circumstances, and the policy framework for action on climate change are diverse these countries have one thing in common: they all have multiple institutions involved in directing finance into climate-compatible solutions.

In this context, a crucial question for international institutions seeking to support countries to achieve to climate-compatible development is: how do we engage diverse national stakeholders, and foster better coordination among them? This is a key question for National Designated Authorities that are entrusted with facilitating national engagement with the new Green Climate Fund (GCF). The GCF for its part has the potential to take more sophisticated and effective approaches to engaging with national counterparts. Our research suggests that there is no single, perfect institutional arrangement to mobilise and deliver climate finance. Any efforts to strengthen coordination around climate finance must contend with messy domestic landscapes, and diverse actors.

Emergence of arrangements for ‘docking’ or ‘mainstreaming’ climate finance

In most countries (developed and developing alike), climate change has primarily been the purview of Ministries of Environment. Ministries of Finance are increasingly engaged on this agenda as well. Both have a vital role to play. Beyond the arrangements within the government, a vast range of institutions outside of government play an important role in implementing efforts to respond to climate change: the private sector, civil society organizations. In some cases these arrangements have been created to ‘dock’ international or external climate finance in the national system. In others, they aim to ‘mainstream’ climate considerations into core policy and associated investment decisions and financial frameworks. Finding a way to bring these arrangements together is a key challenge for international institutions, including the Green Climate Fund.

Scale of available finance: an incentive for better coordination

Changes in structure do not necessarily change behaviour: it is the incentives for coordination that matter. The scale of available finance around which an arrangement is structured can be a significant factor in determining whether it supports “mainstreaming” or “docking”. For example, in many cases inter-agency bodies have been created to make decisions around programming relatively small volumes of finance from the Global Environment Facility; but their traction and influence with mainstream investment actors (such as Ministries of Finance, development banks, and the private sector) has been modest. On the other hand, while Ministries of Finance have engaged around the more substantial sums of finance available through the World Bank’s Climate Investment Funds, coordination with other ministries, civil society and other stakeholders has not been a given: it has taken dedicated time, resources, and support.

A new template for broad-based action

Operational coordination may be complex even when driven or mandated at the highest level of government. Therefore, how coordination is led, matters as much as who leads it. Working arrangements that create space for ministries with responsibility for economic and financial decision-making to partner with Ministries with requisite expertise and mandate to address climate change and environmental issues are needed. These institutional arrangements on climate finance must also create opportunities for diverse stakeholders to input into climate change and finance-related decision making.

Strengthening domestic engagement with international finance

Access to international finance may be structured to help empower lead agencies to convene key domestic actors. But taking such action takes time, resources, and dedicated capacity. A sound understanding of the domestic institutional landscape is imperative to avoid further marginalisation of the climate financing processes from domestic climate policy processes and mainstream investment in relevant sectors. Flexibility is essential. Improved coordination may benefit from:

  • The availability of adequate funding (whether from domestic or international sources) that creates sufficient incentives for key actors to come together and engage over a reasonable time period
  • Proactive leadership of the anchor ministry in efforts to bring ministries of environment, finance, local government and national financial institutions together
  • A robust analysis of stakeholders in the national climate response, their interests and the strengths and weaknesses of existing working arrangements, taking account of relative mandates and resourcing

Accountability to both domestic and international stakeholders for active engagement with the range of relevant stakeholders.

The synthesis paper: ‘Getting it together: institutional arrangements for coordination and stakeholder engagement in climate finance’ can be found here.

The coordination of climate finance in India

Vyoma Jha, Centre for Policy Research

The Indian government recently announced the enhancement of solar energy targets under the National Solar Mission to 100 GW by 2019 as compared to the initial aim of 22 GW by 2022, targeting nearly US$100 billion in renewable energy investments over the next five years. It also established a National Adaptation Fund with an initial funding of Rs.100 crore (approximately US$16 million) as budgetary support towards climate change. While this flurry of activity indicates a commitment on part of the government towards low-carbon and climate resilient development, it also establishes a strong case for identifying the existing and future sources of climate finance to support such activities.

Increasing role of ‘climate’ in mainstream policy and investment decisions

Well-defined policies in the solar energy and energy efficiency markets, triggered by national climate policy, have spurred climate related finance through a variety of domestic and international, both public and private, sources. Most significantly, there has been an emergence of major public and private sector banks and development finance institutions in supporting climate mitigation or adaptation related efforts, lending itself to a ‘mainstreaming’ of the climate agenda within national financial actors. However, there still remains a need to engage these diverse sub-national and financial actors in national agenda setting around accessing international funds.

With no formal coordinating mechanism around climate finance in India, multiple processes for financing thrive within the country that can be broadly categorized into two distinct arrangements – one, mobilizing funding labelled climate finance, and two, mainstreaming public finance that has climate benefits. Our latest study on ‘The coordination of climate finance in India’ suggests the national climate finance landscape is highly fragmented with a wealth of stakeholders at the national and sub-national level, in both the public and private sectors playing important roles. The government needs to recognise these roles and engage these stakeholders, in order to develop a clearer sense of opportunities and priorities using both domestic and international finance.

Making good use of international ‘climate finance’

Key findings from India’s past experiences accessing international climate funds suggest that while Ministry of Environment and Forests (MoEF) is the obvious choice for making decisions on climate-related activities requiring funding, the Ministry of Finance (MoF) is better suited at negotiating large sums of international funding as it is the nodal department for receiving financial assistance from multilateral and bilateral funds. In the context of the Green Climate Fund (GCF), where India continues to play an important role in its operationalization, it is imperative that the two ministries work closely if finance accessed through the GCF is to make its way into domestic efforts on climate in a meaningful way.

One idea that has attracted a lot of interest is the creation of a new National Climate Fund, which could channel international funding. However, India already has a lot of climate funds – for instance, the coal cess-driven National Clean Energy Fund that has done little to scale up investment in clean energy though it is now getting to work; the National Adaptation Fund created during the last national budget – and Indian stakeholders will need to develop a strategy for how best to make use of the available funds to channel new and additional funding through international funds.

Ways forward on coordination around climate finance in India

A concerted strategy needs to emerge around how India could effectively link existing channels of national and international climate finance. One useful immediate step could be for the Climate Change Finance Unit and MoEF to initiate a process of engagement and interaction with other line ministries, state government, banks and businesses to consider options for maximising strategies and optimising the use of international finance from the GCF. This could help the National Designated Authority of the GCF to develop and maintain a steady roster of projects or programmes that would require new or supplemental funding.

The central objective of any national coordination mechanisms around climate finance should be to encourage the incubation of fundable ideas from relevant actors, particularly beyond the core governmental set up, about how to take meaningful domestic actions on climate change. For India, engagement with the GCF presents an opportunity to take much needed steps to better integrate international funding with emerging national development objectives in the context of a climate response.