strategy

Establishing environmental investment funds

Context:
Environmental funds are a potential mechanism for nurturing environmental care at the grass-roots level. This is achieved by caring for the Earth in manageable bits that fit the local context, are sensitive to local cultures and knowledge, susceptible to immediate feed-back and open to a variety of actors and options. If pursued systematically, national environmental funds could be a global mechanism for empowering grass-roots action - a means of merging top-down and bottom-up approaches to management.

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.

Implementation:
Most of the work to date on national environmental funds has been catalyzed by international non-governmental conservation organizations (especially the World Wide Fund for Nature, the Nature Conservancy and Conservation International), bilateral programmes for technical cooperation, and international programmes such as the Global Environment Facility. These lead agencies have worked in close cooperation with each other, development banks, a variety of bilateral donors, national governments, non-governmental organizations and financial institutions. They have demonstrated the potential of this mechanism for democratizing, stabilizing and making environmental management more efficient. During a period of five years, the World Bank reports that environmental funds have been initiated in 20 countries, or groups of countries. Together these funds have received funding commitments of almost US$ 300 million, and have had over US$ 50 million actually transferred to them. Funds in Bolivia, Jamaica and the Philippines have developed to the point of making grants to field projects (a total of almost 90 to date).

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.

Subjects:
Finance
Investment
Environment
Type Classification:
D: Detailed strategies