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.
The study used governance indicators to examine the quality of the rules and practices governing fund management, including:
Public participation in the creation and revision of rules for funding
Clarity of rules for collection and distribution of resources
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.