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July 25, 2019

Better Stewardship can Avert Environmental Catastrophe

Gift emv
Posted by Murray Petrie[1]

The twin climate change and environmental degradation crises show emphatically that current approaches to environmental stewardship are failing miserably. Action is urgently required in three inter-related areas:

  1. Mandatory environmental target setting and the integration of these targets into governments’ medium-term strategic planning and fiscal policy.
  2. National ‘State of Environment’ reporting.
  3. Green budgeting - the use of the budgetary system to improve environmental outcomes. 

While international environmental agreements are crucial to galvanise action, these agreements can in general only be implemented by sovereign states passing and implementing domestic laws.

However, compared to the way in which many governments now manage the public finances - based on commitments in law to publish goals, targets and progress reports - the arrangements for environmental stewardship are primitive. Most governments do no more than set longer-term unquantified ‘feel good’ goals for the environment or ambitious quantitative targets with ‘woefully inadequate’ actions to achieve them’ (Climate Action Tracker, 2019)

As Antoine de Saint-Exupéry famously said “A goal without a plan is just a wish.’

Or a political deceit.

Of course, environmental outcomes result from the complex interplay of natural processes, human activities, and central, regional and local government actions. They cannot be managed in the same way that a government manages its finances.

Nevertheless, there is an urgent need to modernize the framework for national environmental stewardship with transparent goals and targets and ex post accountability. Prompted by international climate change treaties, this approach is being applied by a few governments to limit carbon emissions, using for example the UK’s Climate Change Act 2008 as a benchmark. This general approach is required across all critical environmental domains.

Environmental goals and targets should be integrated into a medium-term strategy that drives the annual budget. The budget is the single most important expression of any government’s actual strategies and priorities. Yet fiscal strategy setting around the world remains dominated by an assessment of macroeconomic and fiscal statistics and associated risks. Information on environmental outcomes, targets and risks is largely absent from these strategies. In New Zealand a proposed amendment to the Public Finance Act would require the government to report on environmental and social indicators alongside macroeconomic and fiscal indicators.

Ideally, the setting of targets for environmental outcomes should be supported by national State of Environment Reports (SoERs). Most advanced countries, several middle-income countries, and some developing countries publish such reports, typically every 3-5 years. Many are based on the UN’s ‘Drivers, Pressures, State, Impact, Response’ (DPSIR) model.

Unfortunately, a lot of SoERs fall short of good practice. Many have gaps in the data and/or its analysis of varying severity reflecting resource and capacity constraints, or contain only backward-looking data. SoERs often fail to highlight the areas of critical concern, governments are not required to respond, and the reports may be largely ignored or quickly forgotten.

National environmental reporting should be progressively introduced in countries that do not yet publish SoERs - especially in megadiverse countries. The focus should be on indicators of critical concern. And where environmental reporting is in place the framework should be extended:

  • Reports should be compiled by an entity with technical independence from government.
  • They should include forward-looking data on resilience, risks, and the environmental outlook (e.g., Australia’s SoER 2016).
  • There should be a legislative requirement for the government to respond to each report stating its priority environmental outcomes, strategies, targets and recent progress. Sweden has since 1999 pioneered a system of environmental quality objectives (EQOs) set by Parliament (although not in law) and an annual progress report to Parliament.
  • Ideally, an SoER should be published prior to each national election – similar conceptually to the pre-election fiscal update required by the OECD Best Practices in Budget Transparency, 2002.

The chart below illustrates a comprehensive framework for environmental accountability. The framework is consistent with Sustainable Development Goals (SDGs) 16 and 17 on accountable and transparent institutions and stronger national implementation capacity, and the UNEP’s Global Environment Outlook 6 that promotes international efforts to strengthen national environmental statistics.

International organizations such as the World Bank, the IMF, and the OECD, international multi-stakeholder networks such as GIFT and the Open Government Partnership, and environmental NGOs can encourage the development and diffusion of new international norms and country commitments on environmental stewardship. Such norms and commitments, together with the ideas for green budgeting discussed in a companion blog, can help turn around the long-term and potentially cataclysmic decline in the state of the global environment.

Only thirty years ago, few would have ever imagined that many sovereign governments would pass laws obliging them to apply principles of fiscal transparency and fiscal responsibility.

Today, we urgently need a similar leap of imagination and political leadership to protect the natural environment for future generations. 

Click on the chart for a better image quality

[1] Lead Technical Advisor, Global Initiative for Fiscal Transparency (GIFT).

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.


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