Department of Finance Canada
140 O'Connor Street
Ottawa, Ontario K1A 0G5

February 2011

RE: Consultation on Official Development Assistance - 2010

The Canadian Coalition on Climate Change and Development (C4D)[1] submits the following comments to the Department of Finance Consultation on Official Development Assistance.  This letter complements a more comprehensive submission the Canadian Council on International Co-operation and Halifax Initiative are making on the World Bank Group and International Monetary Fund.

C4D’s comments pertain particularly to Canada’s contribution to Fast Start Financing for international climate change efforts, and on whether these disbursements meet the criteria of the Official Development Assistance Accountability Act (ODA AA), which are:

1.      Poverty reduction

2.      Taking into account the perspectives of the poor

3.      Consistency with international human rights standards

On poverty reduction

We are concerned that more than 70% of Canada’s 2010 fast start financing allocation was allocated to the International Finance Corporation (IFC), as it is questionable whether this channel is an appropriate means for Canada to invest in poverty reduction. 

More specifically:

·      The IFC is a private investment arm of the World Bank, and funds channelled through it are destined for private companies. In November 2010, the European Network on Debt and Development released a report entitled, “Development diverted: How the IFC fails to reach the poor.”[2] It found that only 16% of IFC’s lending and investments in Low Income Countries is actually channelled to poor countries. The majority of IFC support is in fact for multinationals in OECD countries with a clear preference for large projects that have unclear development outcomes and poverty reduction goals.[3]

·      More than half of the IFC’s funds are managed by financial intermediaries (FI) with a track record of neglecting low income countries.  Given that only 8% of FI’s 2009 financing commitments were directed to low income countries,[4] the overall contribution to poverty reduction is questionable.  

·      Most of Canada’s fast start financing support to the IFC is in the form of loans. Providing loans for climate action is not likely to benefit the neediest and poorest.  Canada must provide increased grant funding for climate action, including for adaptation, mitigation and capacity-building initiatives.

·      The focus of the IFC in the international climate change arena is on supporting mitigation. While important, it is not evident that mitigation through clean energy development contributes directly to poverty reduction. For the poorest of the world – the focus of ODA – adaptation is the overwhelming immediate priority, and climate financing for adaptation would have a far greater impact on poverty reduction.   A better balance between Canadian mitigation and adaptation financing is needed in 2011 and beyond.

On taking into account the perspectives of the poor

·         The IFC, and more generally the World Bank, have governance structures that are dominated by industrialized countries. Decisions are made and policies implemented by leading industrialized nations because they represent the largest donors.  Despite some recent attempts to improve the balance, limited consultation with poor and developing countries takes place, which is in contravention of the ODA AA. Canada must channel a greater proportion of its contribution via mechanisms that offer, transparent and accountable democratic governance and that include meaningful participation of civil society and excluded populations. For example, Canada’s $20 million contribution to the Least Developed Countries Fund comes much closer to the standards outlined in the ODA AA, as would contributions to the Adaptation Fund (a mechanism Canada has yet to contribute to).

·         The FIs through which the IFC frequently works have been criticized for having weaker transparency and accountability requirements than the IFC itself. In contrast to other public financial institutions, IFC contracts and partnership agreements with FIs are not made public and the IFC delegates assessment, monitoring and oversight responsibilities to the FIs themselves, relying on the FI’s self-reported data.[5]  The Canadian government should insist on higher standards of transparency and accountability for all climate-related transactions routed through the IFC, and in particular through FIs.

·         We are encouraged that the Government of Canada is active in establishing a performance measurement framework for funds developed under the Strategic Climate Fund of the IFC, and on the working group on the harmonization of the Climate Investment Funds’ results measurement framework. However, the Government of Canada must ensure to report to Parliament and to Canadians regularly and in a timely fashion on its climate financing contributions, including those channeled via the IFC. These reports should clearly indicate how tax money is being used, the criteria used for making disbursement decisions, and whether the funds are reaching the people who are most vulnerable to climate change impacts. This would contribute to strengthening accountability and transparency in Canada — values that the Government of Canada and Canadians widely embrace.

On consistency with international human rights standards

·         While the IFC does have some policies that consider the negative social and environmental impacts of the climate-related projects it finances, these are subject to varying degrees of scrutiny and criticism.  

·         It is concerning that the financial intermediaries with which the IFC often works have weaker transparency, participation and accountability requirements than the IFC itself (see 6^th bullet above).  Therefore, compliance with human rights standards – and the criteria of the ODA AA – is unclear at best.

Comments submitted by the Canadian Coalition on Climate Change and Development (C4D):

Paul Cobb

Co-Chair

910 - 130 Albert St. Ottawa, ON. paulc@pembina.org.

(613) 216-1976 x 23

Christina Polzot

Co-Chair

200-9 Gurdwara Rd, Ottawa, ON. christina.polzot@care.ca

(613) 228-5626