Accountability mechanisms in international climate change financing

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

This paper uses agency theory to analyse the incentives that a donor (principal) and recipient (agent) face as actors in an accountability regime for the financing of international climate change projects in developing countries. We address the following question: What accountability measures serve to align the incentives of the donor with those of the recipient in climate change financing? We focus on the relationship between the Green Climate Fund as a donor and one of its Accredited Entities as a recipient. We examine the consequences of misaligned incentives and asymmetric information, looking at a specific set of accountability measures, including performance indicators, penalties for poor performance, as well as the role of pressure exerted by civil society organisations (CSOs). We find that the use of imperfect performance indicators can reduce the risk of project failure if they are strongly correlated with adaptation and mitigation impacts. Penalties can have a positive impact on project outcomes, but impose risks upon the agent, which could lead him to refuse the contract for the implementation of the climate change project. The pressure of CSOs was found to have the potential to motivate donors and recipients to become more efficient and effective in their delivery of projects but could also lead to the donor choosing to finance lower-risk projects with fewer climate change benefits. We suggest that accountability requirements need to be carefully balanced with other objectives, including having a diverse set of entities willing to bid for the delivery of projects.

LanguageEnglish
Pages297-313
JournalInternational Environmental Agreements: Politics, Law and Economics
Volume19
Issue number3
DOIs
Publication statusPublished - Jun 2019

Fingerprint

climate change
responsibility
recipient
incentive
civil society
penalty
performance
Climate change
Financing
Accountability
finance
developing country
climate
regime
Incentives
Penalty
Civil society organizations
Performance indicators

Keywords

  • Accountability
  • Civil society organisations
  • Climate finance
  • Green Climate Fund
  • Information asymmetry
  • Performance indicators
  • Principal–agent problem

Cite this

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title = "Accountability mechanisms in international climate change financing",
abstract = "This paper uses agency theory to analyse the incentives that a donor (principal) and recipient (agent) face as actors in an accountability regime for the financing of international climate change projects in developing countries. We address the following question: What accountability measures serve to align the incentives of the donor with those of the recipient in climate change financing? We focus on the relationship between the Green Climate Fund as a donor and one of its Accredited Entities as a recipient. We examine the consequences of misaligned incentives and asymmetric information, looking at a specific set of accountability measures, including performance indicators, penalties for poor performance, as well as the role of pressure exerted by civil society organisations (CSOs). We find that the use of imperfect performance indicators can reduce the risk of project failure if they are strongly correlated with adaptation and mitigation impacts. Penalties can have a positive impact on project outcomes, but impose risks upon the agent, which could lead him to refuse the contract for the implementation of the climate change project. The pressure of CSOs was found to have the potential to motivate donors and recipients to become more efficient and effective in their delivery of projects but could also lead to the donor choosing to finance lower-risk projects with fewer climate change benefits. We suggest that accountability requirements need to be carefully balanced with other objectives, including having a diverse set of entities willing to bid for the delivery of projects.",
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Accountability mechanisms in international climate change financing. / Basak, Rishi; van der Werf, Edwin.

In: International Environmental Agreements: Politics, Law and Economics, Vol. 19, No. 3, 06.2019, p. 297-313.

Research output: Contribution to journalArticleAcademicpeer-review

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