Part 2: Means of implementation
With 2015 potentially signaling a new chapter for the “global partnership” for poverty eradication and sustainable development, developing country leaders have to consider one question very carefully: do they really want to perpetuate the aid and charity paradigm that reduced them to unequal partners in this partnership for the last half century?
“Means of implementation” (MOI) has become one of the most controversial subjects in global sustainable development negotiations. MOI generally includes the financial, technology and capacity resources needed by developing countries to implement sustainable development. Technology and capacity building are critical components of MOI (and may, in fact, eventually hold the key to complex problems like climate change), but I will focus on finance in this blog, mainly in the context of the new report by the Intergovernmental Committee of Experts Sustainable Development Financing (ICESDF).
A charitable narrative
The “development” and “sustainability” components of MOI have developed along parallel tracks.
A very brief history of MOI for development would include the target of 0.7% of Gross National Income first agreed by the UN for Overseas Development Assistance (ODA) in 1970 and repeatedly endorsed in various multilateral fora; discussions around improving the effectiveness of ODA, resulting in the Paris Declaration on Aid Effectiveness and the Accra Agenda for Action; and the Financing for Development (FfD) process, which resulted in the 2002 Monterrey Consensus and the 2008 Doha Declaration. Although inclusive and fair global trade is a critical element for generating finance for development and poverty eradication in developing countries, this element is usually dealt with in generalities under the UN. Instead, the World Trade Organisation, focused on “free trade” instead of “fair trade”, has been the main forum for establishing global trade rules.
The history of the sustainability elements of MOI, meanwhile, started with debates on the preservation of the global commons. As we saw in the previous blog, the polluter pays principle where countries compensate for their share of the responsibility for damaging or overusing the global commons was rejected as a basis for this discussion at the 1992 Rio conference. Instead, MOI commitments were based on vague definitions of the “incremental cost” of protecting the global commons in the developing world.
This set the tone of the MOI debate in the context of sustainability for the next two decades. It would be treated as aid – not compensation. A key condition for the US to accept the Global Environment Facility (GEF), for example, was that their contributions should be considered entirely voluntary and not interpreted as an acceptance of any burden-sharing arrangement. Southern NGOs condemned the GEF as an illegal organisation, where the North could not be assessed for its environmental liability, but the South must beg alms.
A number of common concerns have dogged development and environmental finance since the beginning.
The “additionality” of the sustainability component, over and above the 0.7% development target, has always been a contentious issue. Developing countries insist on the insertion of the phrase “new and additional” each time finance is mentioned in a multilateral environment agreement, but MOI reporting requirements still do not make it possible to establish whether the funds to address sustainability concerns are additional to the 0.7% target, as attempts in the climate change context demonstrate.
The sources of the funds have been an issue – should private sector funding also be counted towards developing country commitments, or only public sector funding? It was this debate in the context of development finance, way back in 1958, which eventually led to the adoption of the 0.7% target from public sources. It continues to be controversial in the context of environment finance today.
The governance of both development and environment finance, by the Bretton Woods Institutions and the GEF, has also been a bone of contention from the start. The need for reforming the Bretton Woods institutions has now been widely recognised – for instance, the 2008 Doha Declaration underscored that they must be comprehensively reformed, and that the enhancement of voice and participation of developing countries in the Bretton Woods institutions, in accordance with their respective mandates, is central to strengthening the legitimacy and effectiveness of these institutions. However, such attempts are constantly stymied.
Developing countries tried to make the governance of environmental finance more democratic than development finance from the beginning. At the 1992 Rio conference, the Malaysian delegate made an impassioned plea: “We will accept GEF, and we will accept that it will be administered by the OECD-dominated World Bank. But can we not have a little say? Can we not have a little more transparency in the administration of this fund? Surely this does not amount to the South squeezing the North?” The plea fell on deaf ears, resulting in two decades of acrimony on the performance and decisions of the GEF.
The latest crop of climate funds, namely the Adaptation Fund and the Green Climate Fund, have learned from this experience and have more democratic governance arrangements. The next governance challenge for these funds is to move decision-making on the use of the funding from far-off capitals like Washington and Songdo, to national capitals – and then further, to the level where actual implementation takes place.
It is against this general background that the latest contribution to “sustainable development” finance debate must be assessed.
Should environment finance be linked with development finance?
As the Sustainable Development Goals seek to integrate development and sustainability concerns, the ICESDF was set up by the UN General Assembly as a follow-up to Rio+20, with thirty experts nominated by regional groups, to come up with an effective sustainable development financing strategy to facilitate the mobilization of resources and their effective use in achieving sustainable development objectives.
The first question for developing countries in the context of the ICESDF report, of course, is whether they would like environment finance, with its clear linkages to liability and lost opportunities for development (for instance, preserving tropical forests instead of exploiting them for economic gain), to be lumped together and treated in the same way as development finance.
In the climate context, for instance, it is becoming more and more difficult for developed countries to avoid a conversation on liability. The Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts is a first step, and a recent study suggests that “far from opening up a Pandora’s box of endless compensation claims towards industrialized countries, a liability mechanism could make global climate cooperation more effective and less costly in the longer run”. It is time that the discussion on the use and preservation of the global commons, at least, moves well out of the aid and charity paradigm. The ICESDF report makes no such distinction.
The second question relates to sources of finance. By now, developing countries should be quite clear about one thing: developed countries constantly default on their promises and commitments. Call it aid fatigue, the state of the economy, or the unwillingness of the rich to face up to their responsibility. It is time to look for other, more predictable, solutions while still retaining the principle of “differentiated responsibility”.
“Innovative” or “automatic” sources of global finance have been discussed from as far back as the 1970s, when Barbara Ward put forward the idea of a global taxation system for the rich to help the poor. Since then, there have been numerous suggestions, including a tax on currency transactions, carbon taxes, and airline levies.
The ICESDF notes the presence of, and need to explore, such innovative sources. For instance, it points to the Leading Group on Innovative Financing for Development, which has pioneered an international solidarity levy on air tickets to help purchase drugs for developing countries. Eleven countries using the euro currency are currently envisioning a financial transaction tax from 2016 (although the funds are not yet earmarked development or financing of global public goods). Some countries like France have put in place a financial transaction tax at the national level, with part of the proceeds used to finance ODA programmes.
However, the report could have made a real contribution by exploring the potential of such sources and barriers in more detail in the context of financing sustainable development – like the High-Level Advisory Group on Climate Change Financing did in 2010. Such alternative sources of finance could ensure a more predictable and “additional” supplement to aid and rule-based contributions for global public goods. Depending on how they are implemented, they could once again help us move out of the donor-recipient paradigm.
Accountability to the bottom
The third question relates to transparency and accountability of MOI – bottom to top, but also top to bottom. Traditionally, accountability flows bottom to top for both development and environment finance – recipient countries and communities report to contributors, on how funds have been used, and whether or not their requirements and conditionalities have been met. (In the context of environmental MOI, this is an interesting twist that could be termed the “polluter says syndrome”. See, for instance, the debate around the World Bank’s fossil fuel funding. Effectively, rich countries that have themselves refused to commit to phasing out fossil fuels under the UN climate negotiations are using finance as a lever to make poorer countries phase them out).
There is an increasing demand, however, for contributors to be more transparent and accountable – on the amount of contributions, the additionality of environmental finance based on clear baselines, and also on the effectiveness of contributions in meeting stated objectives. Although the ICESDF report does call for “mutual accountability” (as previous agreements for aid effectiveness do), it once again misses the opportunity to articulate how contributors can enhance their transparency and accountability. Although the OECD’s Development Assistance Committee tracks aid and includes environment markers, it has been founding lacking in sufficient rigour. A system that has been designed by both developed and developing countries may find greater acceptance and engender more trust.
Such transparency and accountability is all the more critical in the context of the renewed role for the private sector foreseen in the post-2015 architecture for both environment and development. The private sector is described as the new “donor darling”, with developed countries pushing private sector finance as a panacea to the economic crisis and the resulting decline in ODA.
Developing countries are understandably skeptical. It not yet clear to what extent private sector investments will be counted towards contributions, or who exactly in the private sector will participate in the “blending” of official and private sources (public finance will be used to leverage private finance). The term ‘private sector’ includes a range of actors, from large multinationals to micro, small, and medium–sized enterprises. A great deal of transparency and accountability will be needed in the selection of activities and beneficiaries.
The ICESDF report highlights only a few concerns with blended finance, which it on the whole supports. Other analysts have been considerably more critical, finding no reliable evidence to show that such blending mechanisms meet development objectives. They also find that blending mechanisms risk undermining developing country ownership; completely lack transparency and are unaccountable; and may be a waste of scare ODA resources.
Finally, at the expense of being repetitive, I cannot help but end with the observation that the ICESDF seems to have missed one concern that is currently uppermost for those of us working on climate adaptation finance: how to implement the subsidiarity principle for global funding, and encourage decision-making on the use of funds to take place at the level of implementation. It does include one sentence that “fiscal decentralization can strengthen local governance and create local ownership for the disposition of funds”, but only in the section on domestic public finance – not international public finance.
On the whole, I think the ICESDF report regurgitates generalities on which there is already agreement, such as “mutual accountability, “country ownership” and “multi-stakeholder approaches”, but I don’t think it has succeeded in identifying the key issues of its time, particularly issues that concern developing countries, and dealing with them comprehensively. Developing country negotiators must look further, but not pass up this opportunity to re-write the terms of engagement on MOI in the coming decades.