Climate finance transparency is vital – and so is avoiding greenwashing
By Murray Petrie
International climate finance is the main means of reconciling equity (developing countries have contributed little to climate change but are extremely vulnerable to its effects) with effectiveness and efficiency (a large share of the required mitigation is required in developing countries if global emissions targets are to be met).
Climate finance also presents a huge opportunity for developing countries to gain from win-win investments in adaptation and mitigation.
Transparency and accountability for climate finance is key to unlocking these gains. The International Budget Partnership recognizes that funds to respond to climate change are likely to be the single largest source of development finance for the foreseeable future and has initiated a program of activities to promote climate finance transparency and accountability.
Recognizing this, ‘climate budgeting’ by governments has developed over the last decade, particularly in the Asia-Pacific region, with the support of development partners such as the UNDP and the World Bank. An important motivation has been to package public investment projects for external financing.
This requires new systems to track government climate-related expenditures because they cut across existing expenditure classification systems – in the same way that gender-related or poverty-reducing expenditures require specially designed tagging systems if a country wishes to identify and report all related spending.
Following the world’s first Climate Budget in Nepal in 2013, climate budget tagging (CBT) systems have been introduced in about 20 countries. Many have published climate budgets parallel to the government’s annual budget using a variety of specially designed CBT methodologies.
While CBT is not costless, the benefits in many countries are likely to far outweigh the costs given the scale of climate finance and the long-term nature of climate change.
However, two things are noteworthy.
First, no country that has published a climate budget to date has disclosed environmentally harmful expenditures. Climate budget reports only cover those expenditures that are intended to be favorable for the environment.
Yet governments around the world continue to spend vast sums on direct subsidies and tax concessions for brown activities while paying lip service to their green credentials.
Second, the nearly 40 countries that have issued sovereign green bonds are contractually committed to transparent project evaluation and selection criteria and to the regular publication of detailed reports on how the funds have been spent, and on their impacts e.g., reductions in greenhouse gases. They provide no such assurances regarding all their other environment-related spending.
This means that countries issuing green bonds are now committed to providing far more transparency on their environmental spending to private investors than they are to their own legislatures, taxpayers, and citizens.
How can this greenwashing be offset?
One approach recently advocated is for in-country civil society organizations to publish their own ‘Green Guide to the Budget’ using publicly available information in existing documents and reports.
In this way, a picture could be built of the volume and allocation of public resources directed both to environmentally favorable and harmful activities, set in the context of the government’s environmental commitments and framed by cross-national benchmark indicators.
A Green Guide to the Budget could also incorporate civil society recommendations on green tax and expenditure policies to improve environmental outcomes and environmental justice, and a push for more transparency. It could be a vehicle to give more voice to women, indigenous peoples, and other marginalized groups that are often the most adversely affected by climate change and would help to offset the inside influence of fossil fuel and other environmentally destructive lobbies.
There are obvious capacity challenges, but a civil society initiative of this type may have the potential to shift the needle in some countries on accountability for environmental stewardship.
Murray Petrie is the author of Environmental Governance and Greening Fiscal Policy: Government Accountability for Environmental Stewardship and Special Advisor to Global Initiative for Fiscal Transparency.