Abstract
The rapid development of digital technologies such as block-chain and distributed ledger-based systems holds trans-formative potential for the financial sector. Promising applications include asset management as well as peer-to-peer networks for the transparent exchange of data and information. International climate finance stands to benefit in particular ways from these new opportunities in financial technology. Distributed ledger technologies could be leveraged to support climate action, for example by facilitating transparent and standardized transactions, or by enabling more efficient monitoring and accreditation processes. In view of these promising opportunities, we focus our inquiry on the case of the Green Climate Fund to explore how distributed ledger technologies can be used for innovative climate finance. Based on our analysis of different digital system models and potential use cases, we then discuss some of the technical and political challenges that may arise, for example with regard to standards and safeguards, governance processes, country ownership, and further capitalization. Our findings show that distributed ledger-based systems could benefit the work of the fund in key areas such as multi-stakeholder coordination and impact assessment. However, our analysis also points to the concrete limitations of technology driven solutions. Digital technologies are not a standalone solution to persistent resource allocation and governance challenges in international climate finance, especially because the design and deployment of these digital systems is inherently political.
Highlights
The advent of the Anthropocene and the looming climate crisis have sparked vivid debates about the future of the human species, based on the growing realization that human activities have shifted the Earth system toward a critical “no-analogue state,” meaning a state in which the Earth system is outside the range of its natural variability (Crutzen and Steffen., 2003: 253)
In order to facilitate the ongoing debate about climate finance under the Green Climate Fund (GCF), we introduced four basic types of distributed ledger technology (DLT) systems that range from public and permissionless DLT systems to private and permissioned solutions, with very specific legal, technical, and governance implications
Our findings show that digital technologies offer great potential to support the work of the GCF in key areas such as MRV, international standard setting, and multi-stakeholder coordination
Summary
The advent of the Anthropocene and the looming climate crisis have sparked vivid debates about the future of the human species, based on the growing realization that human activities have shifted the Earth system toward a critical “no-analogue state,” meaning a state in which the Earth system is outside the range of its natural variability (Crutzen and Steffen., 2003: 253). To become accredited entities under the GCF, partners have to demonstrate that they can implement fiduciary standards, environmental and social safeguards, the Monitoring and Accountability Framework, the Gender Policy and Action Plan, as well as the Indigenous Peoples Policy (Amerasinghe et al, 2019: 50) Completing this complex accreditation process and demonstrating compliance with social, ecological and fiduciary standards presents a considerable burden for many entities in recipient countries, with real consequences for the ownership and approval of climate change projects (Amerasinghe et al, 2019: 51). Considering these pertinent challenges, we aim to explore how DLTs could be used to support adequate, effective and accountable climate finance under the GCF. We conclude our investigation by identifying key recommendations for innovative climate finance under the GCF
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