Enabling Net Zero Markets: Greening Public Financial Management
December 20, 2022 | < 1 Minute ReadA nation’s ability to mobilize resources to combat and cope with climate change is primarily constrained by its resources and financial capacity, which vary dramatically across developing contexts.
While external sources of funding like the Green Climate Fund (GCF) are critical to meeting a nation’s Paris Agreement goals, they are often out of reach without domestic financial systems and processes to absorb such funds and use them productively. To achieve the proper level of financing for national climate initiatives, countries should first look domestically and identify how public financial management (PFM) systems can be tailored to reflect climate priorities and how fiscal tools could be utilized to spur a net-zero market economy through targeted incentives. Doing so can encourage innovative climate entrepreneurs to cultivate solutions, reduce barriers to green investment, and lower future climate-related macro-fiscal risks, contributing to future public revenues. With the right assistance and political momentum, policy champions, leaders, and finance ministers can facilitate this transition through sequencing and tailoring existing PFM frameworks to achieve pressing climate objectives without a complete overhaul. The good news is that governments already possess the core fiscal instruments to catalyze a broader green market shift. The development community can also assist at all stages throughout this transition to provide critical support, particularly in developing contexts where foundational PFM systems often remain weak.
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