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.

Who’s ready for climate finance?

Richard Calland (Africa Climate Finance Hub) and Smita Nakhooda (ODI)

Is it a bird or is it a plane? The question of what ‘readiness’ for climate finance involves has attracted a great deal of attention and debate, particularly since the Green Climate Fund is supposed to channel $100 billion a year by 2020 for climate action and policy in developing countries.

Despite various efforts from a number of international bodies such as the UNDP, there is little consensus about the matter. Is it a process or an event? This is a yes or no question: you are either ready or you are not. Either way, how on earth do you measure it (or should you even try to do so)?

There have been inevitable levels of ambivalence from potential recipient countries. They welcome the idea of finance that will put them in a better position to use the funds, given the complexity of accessing climate finance, but they are also wary of more red-tape that will absorb time and effort, and end up looking like ‘conditionality’. If you’re not ‘ready’, you may not be ‘certified’ fit for receiving climate finance.

In an effort both to better understand what climate finance readiness funding might usefully entail and, more importantly, what the needs of potential recipient countries might be, researchers from ODI and the Africa Climate Finance Hub spent a year talking to people in three Southern African countries – Namibia, Tanzania and Zambia. We began this work in partnership with GIZ and with support from the German government.

Because every place has unique socio-economic, political and institutional conditions, our starting premise was that any assessment of country readiness should take the ‘3 Rs’ into account:

  • be RELATIVE to a country’s socioeconomic and geopolitical characteristics;
  • be RESPONSIVE to the country’s particular needs, priorities, and challenges – and therefore flexible;
  • be REASONABLE, factoring in key national issues and constraints, and thus identifying the practical steps that can be taken.

All three countries are seasoned recipients of official development assistance (known as ODA), and acutely attuned to the power-play that can quickly subsume conversations about who gets what, when and how. As one finance ministry official put it: ‘we will invest in getting ready for climate finance, but only if we can see that the investment will be worthwhile’. The subtext is: will readiness finance really benefit potential recipients?

From our fieldwork, we gained a number of insights into how readiness finance might cohere with the other efforts that countries are making to address the challenge of climate change.

We considered in-country processes and institutions responsible and necessary for planning for climate change and programming associated finance. We also stressed the importance of what we term ‘aptitude’ – by which we mean more than just the exhausted notion of ‘capacity’, but rather ‘mindset’ and the institutional convictions that are required to really grapple with the tough politics of climate action and its associated political economy. Finally we looked at systems to access and spend climate finance – the sourcing as well as the receipt of climate finance and whether funds are being spent well, in order to achieve intended climate related objectives.

Countries are struggling to align action that is focused directly at climate change with broader national strategies for economic development. The threat posed by climate change may appear less direct, and is certainly more nuanced, but is no less dangerous for long-term prosperity. Readiness support could help countries make better links between “climate” strategies and their development finance plans. For example, readiness support could help governments improve the quality of the data that they need to understand the nature and trajectory of stresses and changes in key economic sectors and the risks these pose for proposed investments.

We found, as many others have, that countries struggle to co-ordinate efforts across departments and agencies. Institutions to support the realisation of climate policies and strategies are emerging, and usually include some formal space for the representation of the various ministries and stakeholders who will need to be involved in implementation. For example, the proposed National Climate Change and Development Council in Zambia will draw together the ministries of environment, finance, infrastructure/public works, mines, energy and water, the Office of the Vice President with its disaster management unit and, most likely, the Zambian Meteorological department, while also engaging civil society and private sector representatives. Similarly the process for developing the Namibian Climate Policy and Strategy has involved consultation with other units of government through a National Climate Change Committee.

But in practice, coordination between activities and within planning processes has been challenging, often lacking sufficient mandate, capacity or incentives. Our studies found that there may be implicit or explicit competition for access to funding, and enhanced political profile. Readiness finance might be used to enable more effective coordination, but there is a need to better understand these underlying dynamics so that support can be well targeted.

While developing countries are taking important steps to integrate climate change into their economic development strategies, in many countries further work is required to enhance alignment between emergent climate response strategies, and existing investment and finance priorities.

A step forward could be to agree that readiness for climate finance is neither a plane nor a bird. But investments in climate finance readiness efforts can support enabling activities within countries that allow climate finance to be used to realise a ‘paradigm-shift’ towards climate compatible development strategies.