4 Aid through other channels |
38. Whilst 60% (£4 billion) of the aid provided
by the UK in 2009-10 was direct bilateral assistance, a significant
proportion (37%, £2.4 billion) was core funding to multilateral
also channelled £1.7 billion of its bilateral aid in 2009-10
(42%) through multilaterals to fund projects in specific countries
or for specific purposes.
39. Working through multilateral institutions enables
the UK to contribute to development in countries beyond those
27 upon which it now plans to focus its bilateral aid efforts.
DFID currently funds over 40 multilateral organisations with different
purposes, for example to respond to natural disasters or to tackle
HIV and malaria. The UK Government is involved in deciding strategic
priorities for the multilateral institutions, but is not involved
in operational decision making.
There are several advantages to working through multilateral institutions.
They can work at a larger scale, have a wider global reach and
are more geo-politically neutral, which can enhance their legitimacy
in the eyes of recipients.
DFID's recent Multilateral Aid Review concluded that the 'multilateral
system is a critical complement to what the UK government can
do alone'. On
the other hand, channelling aid through multilateral institutions
can involve reduced national control over expenditure, less transparency
and accountability and difficulty in evaluating the impact of
individual donors' contributions.
40. The evidence we received highlighted that multilateral
aid, like bilateral aid, has different advantages, risks and opportunities
for environmental protection and climate change.
Greenpeace summed it up: greater capacity in bilateral donors,
particularly in-country, would enable them to have a more positive
environmental impact, whilst increased transparency and accountability
would improve the impact of multilaterals.
Multilateral expenditure has the potential for greater environmental
impacts as the resources available tend to be on a much larger
scale and as a result they have more political leverage.
41. DFID is now facing the challenge of programming
an increasing budget whilst reducing administrative costs by a
third which will
increase the pressure to channel funding through multilaterals.
One of the ten assessment criteria in DFID's Multilateral Aid
Review included performance on climate change and environmental
Greenpeace and Water Witness International saw the review as over-simplistic
in the way it addressed the environmental impact of the multilateral
agencies and believed that it had failed to identify some of the
problems on the ground.
42. The Multilateral Aid Review classified five organisations
as offering good or very good value for money, but as weak on
climate change and the environment.
Despite these findings, UK funding to one of them - UNICEF - will
almost double and funding to another - the African Development
Fund - will increase by a third.
The Minister told us that DFID needs to work closely with these
organisations to bring about improvements and that there will
be a review after 18 months.
43. DFID funds
should only be channelled through multilateral institutions where
they are assessed to be the most advantageous and effective option,
not as the default. DFID must ensure that the multilateral agencies
it funds manage their environmental impact effectively. It should
not be funding institutions that scored poorly in its Multilateral
Aid Review on climate change and the environment unless the organisations
make a commitment to improve their environmental performance and
they are shown to have delivered those improvements.
The Government's influence over
44. The Government is represented on the boards of
some of its multilateral partners which, alongside the funding
it provides, enables it to exert influence over their strategies.
It is often more effective to exert influence before issues escalate
to board level, by engaging with multilateral partners in aid
project design and by ensuring that they are aware of donors'
interests and concerns.
Dr Tanner from the Institute of Development Studies told us that
international standards of best practice have not yet been established
for low carbon development programming, which makes it difficult
for DFID to challenge its multilateral partners.
Greenpeace reported nevertheless that the UK has used its influence
in "an extraordinarily constructive way" in some cases.
45. There are areas, however, where multilateral
agencies' environmental performance has caused concern, particularly
that of the World Bank. Greenpeace highlighted the World Bank's
intensification and expansion of agriculture and forestry lending,
which it considered had been undertaken without consideration
for the potential consequences. The World Bank, Greenpeace also
noted, had failed to follow through the recommendations of its
2003 Extractive Industries Review.
WWF-UK raised concerns that the World Bank's new 'programme-for-results'
lending facility would reduce the use of World Bank environmental
safeguarding processes and instead rely on country-level safeguards
and country-led monitoring, which the World Bank's Independent
Evaluation Group had warned against.
Concerns were also raised about the environmental credentials
of the World Bank's International Finance Corporation. Witnesses
highlighted several examples, including support for asparagus
cultivation in Peru which has resulted in fast depletion of ground
which encourage extensive exploration in the Amazon region for
oil and gas for export,
and support for offshore oil exploration off Ghana which would
dump the drilling waste at sea.
Given the doubts and concerns
about the environmental performance of some multilateral institutions,
DFID should make transparent its negotiating positions with the
institutions, identify which programmes it challenges and whether
these challenges lead to any substantial changes. The
main concern, however, was about the World Bank's energy programmes,
which we discuss below.
The World Bank's energy portfolio
46. Globally 1.5 billion people lack access to electricity,
and 2.5 billion rely on wood and biomass for cooking and heating.
In some places frequent power cuts and irregular supply of modern
fuels inhibit the development of small enterprises.
Lack of access to affordable reliable energy in developing countries
is a significant barrier to development, but it needs to be addressed
in a way that protects the environment and involves low carbon
Greenpeace and Oil Change International argued, for example, that
investment in coal-fired power stations is only acceptable if
it is the only viable option for delivering fairer energy access
and poverty alleviation.
47. The World Bank continues to give considerable
support to carbon-intensive projects, despite being the predominant
route for UK spending on climate finance (paragraph 58). In 2010,
only 42% of the World Bank's energy portfolio was for low carbon
typically supports large-scale power generation and transmission
projects which, we were told, often bypass the communities most
in need of access to energy.
Research by Oil Change International into the World Bank's fossil
fuel lending in 2009-10, found that none of 26 projects it reviewed
identified energy access for the poor as a direct aim of the project.
The World Bank and the reviewers agreed that none of the projects
could be classified as improving energy access.
This included a $3.2 billion loan in 2010 to Eskom, the South
African utility company, to build the Medupi coal-fired power
station. The UK
Government abstained from the board vote on the project. The Minister
told us that future requests for support to the construction of
'unabated' (that is, without carbon capture and storage) coal-fired
power generation would be considered on a case by case basis,
but that providing support was not his "expectation or intent".
A set of assessment principles for coal-fired power stations are
being finalised by the Government which will be used as the basis
for future decision-making.
48. We have not been able to get the World Bank's
perspective on their energy lending.
Encouragingly, however, DFID has been 'actively engaged' with
the World Bank as they have developed their new energy strategy.
DFID has encouraged a shift in the World Bank from fossil fuel
lending to renewables as well as an increased focus on energy
access and improving energy efficiency.
The Minister saw the World Bank's 75% proposed target for clean
energy lending "as a floor rather than a ceiling".
The Government was encouraging the World Bank to focus on the
most valuable contribution it can make, such as leveraging finance
for clean energy production.
The Under-Secretary of State told the House that the Government
"wants to see the Bank explore all reasonable alternative
options before concluding that coal is the appropriate option".
49. The current
scale of the World Bank's lending to support fossil fuel powered
energy generation is unacceptable and counterproductive to efforts
to reduce greenhouse gases. We welcome DFID's active engagement
in the consultation on the World Bank's new energy strategy and
hope that as a result the new strategy will prioritise low-carbon
strategies, affordable energy access for the poor and improving
energy efficiency. The World Bank should not assume, however,
that the UK will continue to provide financial support if it does
not change its practices. DFID should use its position as a major
shareholder to ensure that the World Bank's portfolio is 'climate
smart'. It should be prepared to vote against any new World Bank
funding for coal-fired power stations. DFID should monitor the
World Bank's progress in controlling carbon emissions and the
suitability of the projects it chooses to support, and report
the results in the Department's Annual Report.
Support for clean energy
50. Financial support for clean energy generation
is essential because without it, 'economic logic dictates that
poor countries will prefer the cheapest forms of energy, which
have the highest carbon emissions'.
Many developing countries are well located to develop renewable
energy, especially solar power.
Small-scale local initiatives will also help to achieve energy
access for all.
Dr Mitchell, from the Overseas Development Institute, felt that
it was too soon for carbon capture and storage for fossil fuel
powered generation to contribute to the UK aid portfolio,
and Greenpeace did not think it would be appropriate as it would
not fit DFID's mandate for poverty alleviation and improving energy
the availability of coal could make it a source of affordable
energy in due course, if carbon capture and storage technology
is proven to be effective.
51. DFID does not have any targets on increasing
energy access or for increasing renewable energy usage in developing
has however invested £385 million in the World Bank's Clean
Technology Fund which aims to finance the demonstration, deployment
and transfer of low emission technologies in 13 countries by leveraging
in other investment.
The Fund aims to make clean technology more affordable and attractive
and also to create incentives for the private sector to invest
in such technology.
DFID needs also to recognise the role to be played by small local
initiatives, managed by civil society organisations, in both the
UK and in-country, to provide affordable wider access to energy.
52. UK aid,
whether bilateral or multilateral, should be helping developing
countries to leapfrog high-carbon development and avoid locking
in carbon-intensive infrastructure. DFID should set targets for
increasing energy access and the proportion of renewable energy
usage in developing countries, and report such performance in
its Annual Report.
Support to civil society organisations
53. DFID supports civil society in two waysthrough
their bilateral aid programmes and through particular civil society
funds, in total supporting around 500 civil society organisations.
Civil society organisations and non-governmental organisations
are key to long-term local engagement on environmental protection
and action against climate change. Unsurprisingly, therefore,
some witnesses advocated increased funding for civil society groups,
and suggested that there had been an over-emphasis on 'budget
support' and other high volume bilateral aid routes.
IIED highlighted the critical role local organisations and processes
play in development, sustainable resource use and ecosystem management.
IIED proposed that new innovations are sought in aid delivery
mechanisms to make them more accountable to poor people who could
then determine spending priorities. They cited examples of the
International Urban Poor Fund, the Bolsa Floresta Programme and
the Global Green Grants Fund.
54. However, there are also particular risks associated
with channelling aid through civil society organisations, including
potentially reduced accountability and effectiveness. It could
also be more expensive for DFID to manage, at a time when DFID's
administration budget is under pressure. Malini Mehra told us
that DFID should expect to have to write-off a proportion of the
return on its investments when working with civil society organisations
in challenging environments, but also that that engagement would
help those organisations to be strengthened.
55. The amount of bilateral aid DFID delivers through
civil society organisations has been growing year on year since
2006, reaching almost £600,000 in 2009-10, 15% of its bilateral
The Minister highlighted the importance of civil society organisations
having good relationships in the countries in which they work,
and that decisions on the routes through which DFID channels aid
are based on seeking the greatest impact.
DFID recognises that civil society groups have a key role in terms
of service delivery, advocating policy change, building accountability
and DFID anticipates increasing civil society funding.
In Tanzania, DFID has funded the 'Improved Governance of Forest
Resources' programme which had provided training to 72 civil society
56. We commend
the existing support DFID provides to civil society organisations.
In light of DFID's increasing aid budget, it should consider
which channels would be most effective to deliver its environment
and climate change strategy. DFID should increase funding to civil
society organisations if that can be shown to improve environmental
98 NAO, Aid and the Environment, p8 Back
International Development Committee, Fourth Report of Session
2010-11, The World Bank, HC 606, p29 Back
DFID, Multilateral Aid Review, 2011 Back
Qq 71,72 Back
Q 72 Back
NAO , The work of the Department for International Development
in 2009-10 and its priorities for reform, 2010,p10 Back
Q 37. The IDC Committee concluded that increasing spending through
multilateral organisations would enable DFID to accommodate the
large increase in its budget in 2013-14 without significantly
increasing running costs (Department for International Development
Annual Report and Resource Accounts 2009-10 , Third Report
of Session 2010-11, HC 605). Back
NAO, Aid and the environment, p 24 Back
Qq 76,81 Back
These were as follows: International Committee of the Red Cross,
ECHO, UNICEF, African Development Fund and Central Emergency Response
Q 249 Back
Q 127 Back
Q 130 Back
Q 13 Back
Q 73 Back
Q 72. The World Bank states that during the preparation of a
programme-for-results operation, their staff would assess the
environmental impact management system of the implementing entity
and stipulate improvements if necessary (World Bank, A new instrument
to advance development effectiveness: programme-for-results lending,
revised concept note, 2011). Back
Ev 79 Back
Q 85 ;OilChangeInternational,WorldBankGroupEnergyFinancing:EnergyforthePoor?,2010.
The International Development Committee concluded that in cases
where there is no better alternative to coal, it would be most
appropriate for the World Bank to support those projects that
are most able to control their carbon emissions (International
Development Committee, Fifth Report of session 2008-09, Sustainable
Development in a Changing Climate, HC 177-I). Back
Q 245 Back
Ev 112 Back
The World Bank does not give formal evidence to parliaments. Back
HC Deb, 3 May 2011, col 713W Back
Q 239 Back
Q 237 Back
HC Deb, 4 May 2011, col 828W Back
EG. Practical Action (www.practicalaction.org) Back
Q 25 Back
Q 65 Back
Q 132 Back
Q 112 Back
Q 210 Back
Q 251 Back
Q 114 Back
Qq 115,250 Back
Ev 170 Back