This report will explain the role of open governance in development finance and the importance of each principle to ensuring development finance is used efficiently and effectively for community action. It will identify the degree to which development finance is currently managed with transparency, participation, and accountability. The focus will be on the three primary groupings of institutions that govern climate funding: domestic government institutions, multilateral and bilateral financial institutions, and private investors.

Currently, many sources broadly look at open governance issues within development finance or provide insights into open governance challenges within one type of development finance. This report brings these sources together to review the development finance system as a whole. Based on a review of relevant literature, data collection, and interviews with civil society organizations (CSOs), the report focuses on addressing a gap in knowledge around the following:

  • What are the drivers or key qualities of a development finance governance system that is transparent and accountable to the public?
  • Within development finance processes, what are the opportunities for participation and influence from civil society?
  • What are the main barriers to implementing transparency, participation, and accountability systems, and how can these barriers be overcome?

By reviewing the development finance system more holistically, the report clarifies where shortcomings lie in transparency, participation, and accountability.

Key Findings:

  • While information on development finance has increased, in part as a result of UN ECOSOC reporting requirements, limitations remain. Without increased transparency, the public can only access a partial picture of where development finance comes from and where it is flowing. This impacts the ability of CSOs, citizens, and governments to know where funds are flowing and who is benefiting.
  • The three legs of open governance—transparency, participation, and accountability—are mutually reinforcing processes. Ultimately, without enhanced transparency and meaningful participation, CSOs and citizens cannot effectively hold governments or funders accountable for their actions or inaction.
  • Providers of multilateral finance have developed relatively consistent approaches to transparency, participation, and accountability, but bilateral funders’ policies vary considerably. Governance of private development finance generally remains the least transparent, participatory, or accountable.
  • While governments and financial institutions now provide some opportunities for public participation in the creation of early investment strategies (e.g., NDP investment plans) and in the assessment of investments (e.g., through impact assessments), the point of decision as to whether to invest often remains behind closed doors.
  • One main limitation to greater transparency is the lack of a common definition for development finance, with some funders counting some activities and others disqualifying them.
  • While some funders, such as multilateral development banks (MDBs), have developed joint methodologies for tracking adaptation and mitigation finance, others, such as bilateral finance institutions, have not.
  • Multilateral processes, such as the negotiations under the UN ECOSOC, are central to global conversations on development finance, but these processes cannot be relied upon to significantly improve governance of development finance. For this, one must also rely on other governance structures found in domestic laws and policies as well as the laws and policies of specific institutions such as MDBs or climate funds.
  • Greater accountability is needed within the development finance system. This involves strengthening existing accountability mechanisms and establishing more robust enforcement frameworks.
  • Currently, international public and private development finance lack sufficient enforcement mechanisms.
  • Going forward, development finance will pay greater attention to the implementation of projects and transparency around their impacts. This shift will also require greater emphasis on accountability for whether projects have delivered as intended.