Can climate financing create transformational change?
A $6 billion experiment has been under way at the Multilateral Development Banks (MDBs) for two years. The goal: to demonstrate how scaled-up climate change financing can transform the development pathways of countries to be low carbon and climate resilient. The governing bodies of these experimental Climate Investment Funds (CIFs) are meeting this week in Washington DC, where they are taking stock of the 38 pilot programs for which financing has now been approved.
Many of these pilot programs have the potential to help developing countries address both climate change and development challenges. But if the CIFs are aiming for truly transformative change – helping developing countries make economy-wide shifts in energy use, and enhancing resilience of people, the economy, and the environment – then they will need to do much more to embed these projects within national contexts.
Transformation, after all, needs to emanate from each country’s national plans and priorities, which requires a fundamental shift in how climate change is addressed in development planning processes. CIF resources are extremely modest in comparison to the resources countries need to sustain their social and economic development in the face of climate change. CIF programs can have demonstration value, but transformation will only come if programs also help shift attitudes, knowledge, and incentives in countries to get low carbon, climate resilient development right. Therefore, it is critical that CIF programs link to the underlying policies, plans and processes that guide decisions on how to transform key sectors such as transport, electricity, forests, and water, and place greater focus on them.
Further, the MDBs entrusted with channeling CIF resources also need to be transformed. Low carbon, climate resilient development needs to become central to the strategic and operational policies that guide the investments of these institutions. There have been some steps in this direction: new senior staff has been brought on board to help develop programs to address climate change. But there is still a long way to go in making climate change considerations central to the development assistance extended by these institutions. The CIFs offer an opportunity to catalyze change within the MDBs. It is essential that attention is also given to transforming the MDBs’ core investment portfolio.
These considerations, as well as the CIF impact on governance, are central to how we evaluate the success of the live experiment that is the Climate Investment Funds. There is much to learn from the pilot phase of the CIFs – both negative and positive – that will also be relevant for climate finance channeled through other institutions such as bilateral development agencies, the Global Environment Facility, as well as the new fund being considered in Cancun.