Bridging the Climate Investment Gap: A Call for Stronger Governance

The Asian Development Bank (ADB) has released a critical report titled "A Governance Framework for Climate-Relevant Public Investment Management," emphasizing the urgent need for developing countries to integrate climate adaptation and mitigation into their public investment management (PIM) and public financial management (PFM) processes. This approach aims to close the growing climate investment gap and ensure efficient deployment of climate resources.

The world is facing a daunting climate investment gap. As climate change exacerbates existing infrastructure deficiencies, the need for substantial investment in various sectors becomes more pressing. The Asian Development Bank's recent report sheds light on this issue, detailing the combined investment and climate gap that threatens human welfare and economic growth. The report highlights the significant infrastructure gaps in energy, transportation, water and sanitation, buildings, agriculture, and coastal infrastructure.

Despite the urgency to address these gaps, investments in climate mitigation and adaptation remain insufficient. The ADB has committed $100 billion in climate financing from 2019 to 2030, supporting policies and technologies that reduce greenhouse gas emissions and enhance climate resilience. However, the report emphasizes that this commitment alone is not enough to bridge the vast investment gap.

Integrating Climate into Public Financial Management

The report underscores the importance of integrating climate considerations into public financial management (PFM) processes. A "green" PFM system aims to incorporate climate concerns into the regular budget cycle, which involves setting fiscal targets, budget preparation, budget execution, and audit and evaluation. By embedding climate considerations into these steps, governments can ensure that their fiscal policies support climate-sensitive initiatives.

Countries around the world are beginning to take steps to integrate climate into their PFM frameworks. For instance, Bangladesh, France, and Burkina Faso include climate-related instructions in their budget circulars, while Ireland has "greened" its expenditure review processes to assess the contribution to environmental and climate goals. These initiatives demonstrate that integrating climate into PFM processes can significantly improve governance and ensure that climate finance is deployed effectively.

Enhancing Public Investment Management

Public investment management (PIM) processes are crucial for planning, appraising, and delivering climate-related investments. The report highlights the need for greening PIM processes, which involve strategic planning, project appraisal, and the funding and financing of investments. Strong governance within PIM processes ensures that climate-related projects are selected and implemented based on best practices, delivering maximum benefits within fiscal constraints.

The report outlines several principles of good governance for climate-informed PIM processes. These include institutional capacity, whole-of-government coordination, standardized evaluation criteria, transparency and accountability, stakeholder participation, independent scrutiny, and consistency and predictability. By adhering to these principles, countries can improve their PIM processes and effectively address the climate investment gap.

One example of improved governance in PIM is Armenia's PIM Decree, which integrates climate and disaster risk considerations into the evaluation and prioritization of public investment projects. By incorporating climate risk analysis into the project appraisal process, Armenia ensures that its investments are resilient and sustainable.

The Path Forward

The ADB report concludes with a call to action for countries to integrate climate considerations into their regular PFM and PIM processes. This integration is crucial for closing the climate investment gap and ensuring that climate-relevant projects are effectively implemented and aligned with broader national objectives.

To achieve this, countries must invest in a deep sector understanding of climate change, utilizing frameworks for project identification and prioritization, and adopting inclusive planning processes. Structured risk allocation and the establishment of approval gateways with climate risk expertise are also essential for effective climate-informed investment planning.

Moreover, the report emphasizes the need for fully funded green investments and the effective management of climate-related investments. Public-private partnerships (PPPs) play a vital role in bridging the investment gap, and strong governance ensures that these partnerships are successful and sustainable.

By following the ADB's recommendations and integrating climate considerations into PFM and PIM processes, countries can make significant strides in addressing the climate investment gap and building a more resilient and sustainable future.