Rethinking governance in international climate finance: Structural change and alternative approaches

Abstract

International public finance plays an increasingly prominent role in global efforts to combat climate change and, as it grows, it faces a familiar challenge: governance. Global organizations not only disburse climate funding, but are also expected to ensure the “good governance” of climate programs in recipient countries. Many of these same organizations faced similar challenges in disbursing development finance. In what became known as the “institutionalist turn,” they sought to reform governance and build effective institutions in recipient countries. At first glance, the approach to governance in climate finance appears to be a continuation of these largely ineffective policies. I argue, however, that important structural differences between climate finance and development finance have been overlooked, and that these differences create space for alternatives approaches to governance. I first examine the literature on what led to the ineffectiveness of governance reforms tied to development finance, concluding that global organizations have been consistently unable to recognize and grapple with how power actually works in recipient countries, especially informal power. I then highlight three new principles underlying climate finance: (1) that it is restitution not aid, (2) that recipient countries should control resource allocation, and (3) that funding should support mitigation and adaptation. I demonstrate how each new principle has produced shifts in decision‐making authority away from contributors and toward recipient countries. I discuss how alternative approaches could emerge both from forums where recipient countries exercise newfound authority, and from experimentation on the part of multilateral organizations.