Scale up public investment for climate and nature

Green budgeting entails reviewing government budgets to identify how all aspects of public expenditure affect environmental policy aims. It helps governments work across the entire public budgetary policy-making process to achieve environmental and climate goals. Green budgeting leads to more coherent policy making by analyzing the ways in which all elements of a government budget help or hinder the achievement of climate and environmental objectives. 

Green budgeting can make public expenditures more accountable to public interests by enhancing the transparency between the government and civil society.

Green budgeting strategies generally involve systems that encourage integration of environmental priorities into budget decision-making, and help governments monitor whether public budgets are supporting environmental policy goals. 

An increase in the number of countries adopting green budgeting will indicate that more governments are on track to implement policies that promote positive social, economic and environmental outcomes. As of 2022, 24 out of 38 member countries of the Organisation for Economic Co-operation and Development (OECD) had adopted some form of green budgeting, up from 14 in 2021.

Sovereign green bonds — debt raised by governments from investors — fund public sector expenditures that bring positive environmental and climate benefits. When used appropriately, these bonds help governments promote economic resilience and a more sustainable economy, and are also a means for investors to allocate private capital from their portfolios for sustainable activities.

Countries that issue green bonds highlight their commitment to the environment and send an important political signal to the private sector to accelerate action. India, Colombia, Germany, Spain and the United Kingdom, among others, have already issued sovereign green bonds and have allocated proceeds to clean transportation, green buildings, sustainable water management and pollution prevention projects.

The more sovereign green bonds countries issue, the more financial resources governments will have to accomplish their climate and environmental goals. In 2022, about $81 billion was raised via sovereign green bonds across seventeen  countries, an 11% increase from the previous year.

Tracked by the Organisation for Economic Co-operation and Development (OECD), biodiversity-relevant subsidies are one of four main types of economic instruments related to biodiversity that can mobilize finance and generate revenue. The others are biodiversity-relevant taxes, fees and charges, and tradable permits.

Biodiversity-relevant subsidies channel public finance toward sustainable forest management, reforestation and land conservation, and sustainable agricultural practices. The post-2020 global biodiversity framework identified the need to increase biodiversity finance to at least $200 billion per year by 2030, including $10 billion to developing countries per year. As of 2023, there were 28 countries with biodiversity-relevant subsidies, rising slowly from five in 1980.

Agriculture is a major beneficiary of government subsidies and a primary driver of land degradation and soil and water pollution. The United Nations Environment Program (UNEP) estimates that harmful agricultural subsidies totaled $345 billion in 2022. Subsidies to support agricultural producers are projected to triple to $1.8 trillion by 2030.

Rather than continue business-as-usual practices that exacerbate the overuse of natural resources and catalyze biodiversity loss and pollution, government spending can be re-oriented to research, development and implementation of sustainable agricultural innovations. Improvements in productivity would no longer depend on toxic pesticides and resource exploitation, but on improved farming techniques and technologies. Higher proportions of such government funding will have many spillover benefits, such as increasing crop yields, avoiding land-use changes and reducing greenhouse gas (GHG) emissions.

According to the International Food Policy Research Institute (IFPRI), global spending from public, nonprofit and higher education sources toward agricultural research amounted to $46.8 billion in 2016, a 51% increase from 2000. Other studies estimate about $60 billion of annual funding on agricultural research and innovation for emerging and developing countries between 2010 and 2019, with 60%-70% coming from public sources. However, less than 7% of the total funding targeted sustainable agricultural innovation.

In 2021, according to the Organisation for Economic Co-operation and Development (OECD), governments alone allocated $34.8 billion to agricultural research, education and technical assistance. This was in line with historical averages and corresponded to about 8% of total direct government agricultural spending. These amounts aren’t exclusively for sustainable agricultural research, so it’s likely that some of the support is being directed to harmful technologies and practices. The indicator will track support to sustainable agricultural research once the breakdown becomes available.