Establishing environmental investment funds

If properly designed and operated, national environmental funds (NEF) can play a catalytic role in improving environmental management, biodiversity conservation, and sustainable and equitable use of natural resources. Though experience is limited, those funds that have been most successful have been set up as autonomous entities with broad participation in governance. National environmental funds can be set up as foundations, trusts, endowments, or grant-making facilities. They can be capitalized through a variety of mechanisms such as debt-for-nature swaps, debt-forgiveness schemes, in-country fees on tourism and direct contributions from donor agencies.

When designed with care, national environmental funds have a series of attributes that make them attractive for funding environmental management: they encourage the participation of interested parties (government agencies, the independent and business sectors, and relevant interest groups) in all aspects of environmental projects and become democratic and accountable nodes of empowerment capable of moving beyond narrow sectoral interests. Furthermore, they encourage the representation of diverse interests in common activities that require cooperation and shared control, and promote value systems that feature democratic principles, cooperation and accountability of the funds.

Impressive as the record of action is, the World Bank indicates that much more can be done to accelerate and improve the process. There is no central clearing-house for accurate and up-to-date information. Analysis of results to identify what approaches have worked best has been sketchy and subject to institutional biases. Fund organizers and donors alike are sometimes suspicious of the motives of the international non-governmental organization intermediaries. Donors are wary about the capacity, representativeness and accountability of nascent funds. Much therefore remains to be done to promote and encourage the further development of national environmental funds. There is a need for exchange of information between practitioners so that ideas and insights can be shared. Guidelines for the development and management of environmental funds, based on experience to date, are urgently needed. These might provide the future basis for the definition of standards of "good practice" and certification of individual funds by an independent and trusted "honest broker" as a means of building the confidence of both donors and recipients.

There is a growing need to broaden the sources of fund capital, especially in-country sources. Additional investment and technical assistance are essential to broaden the fund start-up process, which can be long and costly. Once a fund is established, technical assistance is frequently required over a number of years to improve governance, enhance the involvement of local interests and improve fund management, accountability and grant-making capacity.

In 1997, the European Union proposed a small tax on aircraft fuel to fund environmentally friendly projects. A levy of just a few per cent on the fuel in Europe alone could produce 2 billion pounds a year for development.