Do Multilateral Development Bank Trust Funds Allocate Climate Finance Efficiently?

Abstract

<jats:p>The Paris Agreement has been celebrated as a breakthrough for international climate policy. However, relatively scant attention has been given to the emergent ecosystem of climate finance facilities that support it. We provide an overview of the rising number of climate-related trust funds at multilateral development banks (MDBs). These funds can be distinguished into mitigation funds and adaptation funds. Some funds have a focus on capacity building activities. To maximize their effect on sustainable development, the different types of funds should follow different resource allocation criteria: For adaptation funds, vulnerability should represent the primary criterion. For mitigation funds, the main criterion should be the emission reduction potential. Capacity building should primarily focus on countries with weak institutions. Using a novel dataset of disbursements of climate-related trust funds, available for the World Bank, we examine whether fund allocations correspond to these expectations, and compare them with those of bilateral donors. We find that while trust funds with a focus on mitigation generally allocate aid in line with efficiency considerations, trust funds with a focus on adaptation do not seem to prioritize the countries most strongly in need, contrary to bilateral aid. Furthermore, capacity building activities do not seem to focus on countries with weak institutions. These findings have important implications for the effectiveness and legitimacy of climate aid to developing countries.</jats:p>

Climate Adaptation Finance in World Bank Economic Development Programs: The Challenges of Systemic Transformation via “Scaling Up”

“…Our approach has several similarities with a recent analysis by Michaelowa et al [24] of factors influencing the distribution across countries of trust fund disbursements and bilateral assistance to support climate change mitigation and adaptation. Their analysis of the allocation of fund disbursements for adaptation considers log(GDP per capita), log(population), land area less than 5 m above sea level, the Notre Dame GAIN indicator of risk exposure (see https://gain.nd.edu/our-work/country-index/, accessed on 16 September 2021), and an indicator of government effectiveness.…”

“…By counting in Project Appraisal Documents (PADs) (the key document describing a project that is submitted to World Bank Senior Management for approval of the project), the occurrence of certain keywords that represent different themes, one can get at least a rough idea of the different levels of focus on the themes, including themes related to climate change. As discussed further below, Michaelowa et al [24] conduct a similar analysis with some similar conclusions, but their focus is on donor trust funds based at multilateral development banks like the World Bank. Our focus is on mitigation and adaptation aspects in World Bank project budgets in IDA and IBRD projects.…”

Implications of Development Cooperation and State Bureaucracy on Climate Change Adaptation Policy in Bangladesh

“…The BCCTF is based on domestic budgetary allocations (current amount is US$300 million; ibid), and the BCCRF is multi-donor trust fund that relies on development partners' funding assistance, i.e., US$188 million [33]. Bangladesh received funding from other climate-related trust funds, most of them managed by the World Bank [11]. Notably, the BCCRF was closed for undisclosed reasons.…”

“…Therefore, in the context of a development trajectory and budgetary tension, national and international actors, as potential policy options, have launched several funding programs in Bangladesh that aim to adapt to visible climate challenges. However, often, the climate policy being considered has not generated the desired outcomes [11][12][13][14]. The funding policy might have failed because of implementation problems [15,16].…”

Effectiveness of climate change adaptation interventions in sub-Saharan Africa and the impact of funding modalities: a mixed methods systematic review protocol

“…Weiler 2017;Mori et al 2019;Michaelowa et al 2020;Persson and Remling 2014;Remling and Persson 2015), but do not focus on adaptation outcomes on the ground. Other studies on adaptation finance have focused mainly on the gap between adaptation finance and adaptation needs, without evaluating evidence on effectiveness that links finance with a specific set of adaptation outcomes (UNEP 2014; UNEP 2016; UNEP 2017; UNEP 2018).A…”