Use of private sector to repackage and channel capital leads to serious challenges in transparency and public accountability
No 631 Posted by fw, December 9, 2012
“Private sector money flows where the profit potential is greatest. For a climate fund this means big, mainly mitigation activities — not community-scale projects, adaptation, or disaster relief.” —Janet Redman
With the prospect of the private financial sector playing an even bigger role in climate finance, the role for citizen activists takes on new and daunting challenges. Below is a reposting of Janet Redman’s astute observations on the private sector’s “murky” role, including my added subheadings and external links, To read Janet’s original piece, click on the linked title. And don’t miss the Real News Network’s video interview with Janet embedded at the end of this post.
The Private Sector’s Murky Role in Climate Finance, By Janet Redman, Co-director, Sustainable Energy and Economy Network, Dec 6, 2012
“Wealthy governments shift focus from public support to private finance”
Multinational corporations and investment banks shouldn’t dominate financing of climate adaptations, says Janet Redman, reporting live from the UN Climate Summit, Doha, Qatar.
While the costs of mitigating and adapting to climate change rise and thus the need for climate finance in developing countries grows, wealthy governments shift focus from public support to private finance. But can the private sector meet the needs of those most impacted by climate change?
In the halls of the UN climate negotiations in Doha, Qatar, you will hear a mantra that’s being echoed by developed country governments from their capital cities to international forums. It goes something like this: We’re broke. There’s no public money. And so, we have to use the scarce resources we do have to leverage massive wealth in the private — and particularly the financial — sector.
Private sector has taken centre stage at Doha debates over climate finance
You’ll also find in the halls of the annual climate summits the faces of private interests — industry reps, investors, and carbon traders. They’re a regular fixture here, but this year the private sector has taken centre stage in debates over climate finance.
At COP18 there are seven times as many side events about getting private finance and carbon markets engaged in climate action as events highlighting the role of public funds.
There has also been a strategic shift in the rhetoric of developed countries away from talking about “providing” climate finance to speaking about “mobilizing” money. The former implies public flows. The latter suggests countries are shifting emphasis toward looking outside national budgets for financial resources.
Private sector have won guarantees to the Green Climate Fund
Nowhere is the trend toward privileging the private sector more apparent than in the Green Climate Fund (GCF) — the newest financial institution under the climate Convention. After many contentious debates during the Fund’s design phase, industrialized nations succeeded in creating a sub-fund that guarantees the private sector direct access to the fund.
And private sector vultures are already pushing back on the one concession won by countries
Countries did win one concession — a ‘no-objection procedure’ that is meant to keep multinational corporations and international investment banks from going directly to the Green Climate Fund to undertake work in countries without the knowledge of national capitals. But investors are already starting to push back, saying that any kind of vetting process by the UN would make private sector engagement untenable.
GCF’s board now faced with reviewing the “ultimate purpose” of the Green Climate Fund
In light of these challenges, the GCF’s board will have to grapple as they write the Fund’s business model this year with the question of what the ultimate purpose of the Green Climate Fund is — to maximize the involvement of the private sector, or to support low-carbon, climate-resilient sustainable development in poorer nations as its mandate states?
When it comes to helping low-income countries, the private sector does not have a good track record
While these two aims don’t have to be mutually exclusive, lessons from existing private sector institutions – like the World Bank’s International Finance Corporation – show that private finance often bypasses low-income countries, fails to reach the poor in middle-income countries, and prioritizes large corporations over small and medium enterprises.
Moreover, transparency and public accountability are not private sector’s strengths
In addition, the use of financial intermediaries to repackage and channel capital leads to serious challenges in transparency and public accountability. Particularly important is the fact that private sector money flows where the profit potential is greatest. For a climate fund this means big, mainly mitigation activities — not community-scale projects, adaptation, or disaster relief.
The hard reality is that without private sector in the game there will be no transition to a low-carbon future
Certainly, the private sector plays a critical role in any economy – and without its participation in making the shift away from dirty energy and polluting industry there will be no transition to a low-carbon future.
But the private sector efforts that the Green Climate Fund should support are domestic enterprises that will reinvest wealth to meet the climate priorities of the people and communities most impacted by global warming.
Janet Redman is co-director of the Sustainable Energy and Economy Network, where she provides analysis of the international financial institutions’ energy investment and carbon finance activities. She is also a founding participant in the global Climate Justice Now! network.
- Finance Rules at Doha UN Climate Summit, Janet Redman, The Real News Network, December 7, 2012 – 11-minute video interview. “UN conference reflects lack of urgency from developed countries and focus on private finance.”