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New Study Reveals Weaknesses in Brazil’s Forest and Environmental Funds

As developing countries move forward with plans to cut greenhouse gas emissions by safeguarding their forests (known as REDD+), it’s imperative that they follow the money.

Brazil is a case in point. The country is a big investor in environmental stewardship, including several government-managed funds meant to protect the Brazilian Amazon rainforest. However, new analysis published by two civil society partners of WRI’s Governance of Forests Initiative in Brazil -- IMAZON and Instituto Centro de Vida (ICV) -- shows the funds aren’t being properly managed.

The study assessed how state environmental agencies are managing 11 forest and environmental funds in nine states of the Brazilian Amazon, and found significant governance weaknesses in all of the funds. These weaknesses could undermine the effectiveness of these funds to help environmental programs protect forests and mitigate climate change.

Governance Analysis Reveals Critical Gaps

Each state of the Brazilian Amazon has designated at least one state-level fund that supports environmental programs. These funds are administered by environmental agencies and are an important source of financing for protection of the Amazon rainforest. The study compares the design and operation of these funds with a set of governance criteria derived from WRI’s Governance of Forests Initiative Indicator Framework.

The analysis identified critical weaknesses in how funds are managed (see chart below). For example, most agencies did not have sufficient staff or budgets to administer funds. In most cases, rules governing the state funds also did not set out clear procedures for how funds were collected and used. Fewer than half of the funds ensured public participation in determining how the fund was structured or used. Finally, few of the funds regularly monitored performance or provided financial reports to the public.

Improving Governance through Transparency

But there is reason for hope. Past work by IMAZON and ICV has already shown that this type of analysis can play a critical role in strengthening governance.

For example, an earlier version of this study published in 2011 focused only on the state funds in Mato Grosso and Pará. The study helped prompt an investigation by Brazil’s state prosecutors, which found that almost $9 million USD had been diverted from the Mato Grosso fund (FEMAM) to the State Treasury to cover other expenses such as government payroll. A judicial action brought by the state prosecutors got the money returned to the state environmental agency and prompted the formation of a special commission to improve the fund’s transparency.

The work of ICV and IMAZON demonstrates how governance weaknesses can be exposed through systematic, indicator-based research. It also underscores the importance of strong oversight to make sure institutions entrusted with managing public finance use funds for their intended purposes.

Strengthening Financial Governance Is Critical for Brazil’s Forests

The study’s findings hold important implications for the future of Brazil’s forest ecosystems, and potentially for the country’s efforts to mitigate climate change through programs to reduce emissions from deforestation and forest degradation (REDD+). While Brazil has yet to finalize a national REDD+ strategy, several states of the Amazon are moving forward with efforts to reduce deforestation that may involve channeling REDD+ payments through the existing funds reviewed in the IMAZON and ICV study. It’s clear that if the funds analyzed in this study are used to channel REDD+ financial flows, their governance must first be significantly strengthened.

The study also has broader lessons for countries in the process of designing and implementing national REDD+ programs. Building capacity for effective revenue management has received relatively little emphasis in REDD+ readiness discussions to date. As more developing countries move forward with setting up their REDD+ programs, strengthening systems for transparent and accountable management of financing is essential to ensure success.

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