Effective and sustainable climate finance at the local level depends not only on the volume of available funds, but above all on the quality of how those funds are managed throughout the entire budget cycle.

Our latest Policy Brief No. 2, developed under the project Strengthening Integrity in Climate Finance funded by the European Union, reveals that three independent sources of evidence – institutional analysis (PEFA Climate), citizens’ perceptions, and business sector experiences – converge on the same conclusion: local climate funds lack adequate budget tagging, are insufficiently represented in reporting to municipal councils, and face heightened risks of corruption due to weaknesses across all budget phases.

Key Takeaways:

  • Execution Phase as the Primary Bottleneck: Corruption and irregularity risks are heavily concentrated in public procurement and contract management. 28% of citizens view the selection of contractors in public procurement as the highest corruption risk, while 80.1% of surveyed local businesses have never participated in municipal green/climate procurement.

  • Systemic Weaknesses Across All 4 Phases: Risks stem from initial budget planning (none of the 9 analyzed municipalities has established a climate budget tagging system – indicator CRPFM-2 rated D) and persist through reporting (lack of detailed narrative explanations for councils) and external audit/oversight.

  • High Potential, Low Engagement: Public awareness and business readiness for green investments are high, yet the current institutional framework fails to convert this potential into active participation, oversight, or public trust.

  • Considerable Municipal Disparities: The composite governance index across municipalities ranges from 46 down to 19 points (0–100), demonstrating that local solutions exist, but good practices are not being systematically shared.

Policy Recommendations:

Achieving good governance requires parallel interventions:

  1. Central Government: Mandate a single methodology for climate budget tagging and introduce legal obligations for standardized narrative reporting.

  2. Local Self-Governments: Digitize and publish all criteria and outcomes of climate procurements and hold dedicated public hearings for climate-related budget allocations.

  3. Citizens & Business Sector: Utilize reporting channels for procurement irregularities, participate in climate-specific consultations, and demand concrete accountability.

Explore the full policy brief for complete findings and tailored stakeholder recommendations.

📄 Download Policy Brief #2 (ENG)