EUROSAI. Magazine N26 - 2021

EUROSAI 124 Studies and other articles Recovery spending following the pandemic coincides with growing concerns over the future global threats, including the climate crisis. Many stimulus packages are thus geared to supporting the transition towards a carbon-neutral economic system. The European Union, for instance, has decided that at least 37% of the Next Generation EU recovery instrument amounting to EUR 750 billion should be used to support climate actions. A key question is how to ensure that the funding really contributes to climate: are funds allocated in line with the climate objectives and are the actions effective? To support this examination, the National Audit Office of Finland commissioned a report from the Institute of European Environmental Policy (IEEP), which is an independent sustainability think tank. This report provides an analytical review of existing practices to track climate-related expenditure, identifying a range of areas where current tracking systems differ in their practical application. The report analyses climate tracking approaches and key methodological questions based on nine case studies from Canada, France, Ireland, the European Union, Norway, Nepal, Chile, Mexico and the World Bank. The objectives and tracking systems vary – also harmful subsidies should be identified The objectives of climate finance tracking methods vary from meeting quantitative climate finance commitments to mainstreaming climate policy by making it relevant to different sectors. It can also improve understanding of the gap between current investment and the level of investment believed to be required. Depending on its level of ambition, the tracking method may also seek to evaluate the effectiveness of finance. The report stresses the need for clarity on the purpose of the tracking system, and transparency on how it is used. Many tracking systems, such as the one the EU uses and are based on so-called “Rio Markers” identifying whether expenditure is primarily focused on climate outcomes, or whether it addresses them as a principle secondary objective. The Rio Markers system provides a relatively simple approach, and it can be used on the stated objective of expenditure or based on the impacts in practice. There are also systems that use a binary categorisation looking at climate relevance alongside other environmental outcomes. While this can give valuable information on whether climate and other sustainability issues have been mainstreamed in individual areas of expenditure, it is not as effective in providing estimates of overall expenditure on climate. Identifying funding that has a negative impact on climate objectives would also be essential. Only this way can we gain an overall understanding of the budget’s climate impacts. Essential aspects of climate finance tracking methods include the extent to which indirect impacts are accounted for, and whether taxation is also included as is the case of France and Norway. Vivi Niemenmaa Deputy Director National Audit Office of Finland REVIEW ON CLIMATE TRACKING METHODS Governments around the world have spent huge sums on economic recovery following the pandemic. Many recovery packages address climate action, but the key is whether the funding really benefits the climate. A review on climate tracking systems, commissioned by the National Audit Office of Finland, presents various tracking methods for public funds.