Climate Funds: Time to Clean Up

Philippe LE HOUÉROU * Chairman of the Board, AFD (Agence française de développement); Director, Ferdi Chair in International Architecture of Development Finance. Contact : lehoueroup@gmail.com.This article was published by Ferdi in a Working Paper no. 320 on March 2023.

Over the last 30 years, at least 94 green-climate funds have been created to finance climate-related projects and programs in emerging markets and developing economies (EMDEs). Each individual fund may have been justified at the time of its creation. As a system, however, they do not add up and their contribution to the total flows of green finance remains marginal.

In this paper, we count 81 active funds as of the end of 2022. Moreover, it is quite difficult, if not impossible, to evaluate even the most basic aspects of the financial management and impact of these funds as a « system » and a channel of climate finance. Given the urgency of scaling up both mitigation and adaptation policies and projects in EMDEs, and before creating new funds that would add to the current astonishing fragmentation, it is urgent to increase the transparency, efficiency and impact of today's existing publicly financed funds. That would be a useful first step in rationalizing and redefining the current messy aid architecture.

The discussion about the much-needed changes in the aid architecture has become more active in recent months. Over the last 30-35 years, the aid architecture that came out of World War II (WWII) has evolved without a master plan, without an architect, in a series of ad-hoc adaptations. This has led to a messy and fragmented aid system that few understand and whose efficiency and impact are being questioned. In addition, as the devastating consequences of climate change and pandemics (think Covid, avian flu, etc.), are becoming more obvious to world citizens, and hence their political representatives, urgency of “doing something” or more precisely “doing more” about global public goods has jumped to the top of the agenda (G7, G20, Bridgetown Initiative, etc.).One of the symptoms of both the fragmentation of the aid architecture and the…