The Role of Institutional Design in Mobilizing Climate Finance: Empirical Evidence from Bangladesh, Brazil, Ethiopia and Indonesia

Many developing countries have sought international assistance to implement climate change-related programs and projects. Estimates suggest that emerging market and developing economies will need to mobilize an annual $2.4 trillion by 2030 toward climate goals. International climate finance is a crucial component of the response to climate change.

In a new journal article published in PLOS Climate, Rishikesh Ram Bhandary examines how national-level funding vehicles mobilize finance from international sources. Based on interviews with policymakers and various actors involved in the negotiation and design of four major early national climate funds – the Amazon Fund, the Bangladesh Climate Change Resilience Fund, Ethiopia’s Climate Resilient Green Economy Facility and the Indonesia Climate Change Trust Fund – Bhandary identifies design features of national climate funds and highlights the trade-offs that developing countries face in their pursuit of climate finance. He argues these design features have a significant bearing on the overall effectiveness of the funds themselves.

The findings from this study suggest that developing countries seek to maximize control over the funds even though it means that the design features do not minimize costs, as efficiency-oriented perspectives would suggest. The experience of these early national climate funds could be instructive to those governments and stakeholders considering establishing their own national climate funds or improving features. 

Policy recommendations: 

• Investing in improving fiduciary standards and safeguards significantly helps to improve the bargaining position of host countries.
• Governments should investment in improving the governance standards of possible trustees. Not only is it a no loss proposition, it would also help to strengthen their case for a domestic trustee.
• National climate funds should focus on building expertise and a track record of implementation. Over time, the fund will be able to garner greater interest and may achieve the scale that was originally desired.
• Since host country commitment to climate change is crucial operating context for national climate funds, governments should also regularly report on their efforts and results.

Understanding the intricate dynamics of national climate funds and implementing the recommended policy measures can pave the way for more effective mobilization of climate finance, crucial for achieving global climate goals.