Financial Institutions between Effectiveness and Legitimacy – A Legal Analysis of the World Bank, Global Environment Facility and Prototype Carbon Fund

Abstract

Environmental financing is one of the crucial issues of international environmental law and its implementation. From an environmental perspective a prerequisite for success is that financial resources are used in an environmentally effective way. Whether the World Bank, the Global Environment Facility (GEF) and the Prototype Carbon Fund (PCF) can be perceived as effective environmental actors has to be measured by their objectives, their potential to promote accepted environmental standards and their relevant funding practices. After significant improvements of their environmental policies, the World Bank must be considered the most important institution for environmental financing due to its involvement in environmental trust funds but also in regard to its regular lending practices. The GEF remains exceptional due to its institutional structure and scope, whereas the PCF is an example of public–private partnerships that might be a model for future financing via trust funds. Since acceptance of institutions can only be created if they are considered to be legitimate, legitimacy is closely tied to effectiveness. The main criteria for legitimacy are state consent and the equality of states as well as supplementary considerations such as transparency and public participation. From this perspective the World Bank, GEF and PCF structures of voting and participation have come a long way, and despite their particularities and deficiencies they reflect to a varying degree elements of legitimate decision making.