Annex 15: Greening the Risk Management Framework Plus

The RMF+ country report is prepared by EU Delegations and, in the case of DG NEAR, approved by management in HQ.

The RMF+ report covers risk categories related to environment, climate change and the green transition that can be useful to inform the programming process, policy dialogue, the identification and formulation of actions and the screening of investment pipelines from an environment and climate change risks perspective.

Various risk dimensions have an environmental and/or climate change component, as shown in the box below.

The RMF+ country report can be used by anyone involved in EU cooperation to inform decisions along the intervention cycle, from programming to evaluation, and under the different implementation modalities. It allows for the identification of priority areas, the identification and design of actions, the screening of investment pipelines and the design of the policy dialogue to better respond to environmental and climate related risks.

The RMF+ country reports and dashboard are available internally here.

Four risk categories are used to build a risk assessment, linking with main EU priorities that include the green transition, sustainable growth and jobs, and sustainable finance. This helps EU Delegations in defining mitigating measures, which are monitored and updated on an annual basis.

To complete the analysis for each of the dimensions from an environmental and climate perspective, the following elements and guiding question can be used.

Category 1. Political system and corruption

This category comprises the issues related to corruption and access to natural resources. Due to the intrinsic high value of natural materials and resources, they are often depicted as “a blessing, and a curse”. The risk of corruption cuts across the natural resources sector, for both renewable (e.g. forest, fisheries, land) and non-renewable resources (e.g. oil, minerals, metals). To address these issues, it can be useful to consider:

• To which extent are inclusive access to and management of natural resources (e.g. access to safe drinking water and sanitation, a basic human right), as well as equality of opportunities in accessing and managing productive land ensured?
• How is distribution of revenue over the use and exploitation of natural resources organised and does it promote equality of treatment among various social groups, including women? e.g. sales from timber originating from community forests.
• To which extent is there a risk of diverting resources away from the intended environmental or climate action? e.g. infrastructure do not receive the intended climate proofing upgrades due to financial leakages, potentially feeding corruption.
• To which extent can fraud and malpractice be linked to resource depletion? e.g. in fishing (distortion of quotas, money laundering reaping profits from illegal fishing) or forestry (illegal exploitation or logging of high value species, in protected areas, on indigenous land, laundering of timber through agricultural front companies, …). These may include any breach of national or international legislation that protects wildlife species, posing a threat to living beings (e.g. killing, poisoning or poaching, sale and/or exchange of wild animals and plants - either live or dead specimens -, parts or derivatives, or transformed products).

To formulate mitigation measures, use known reference measures and recommendations to support distributed governance systems allowing improved equality in access to natural resources, monitoring and law enforcement systems related to natural resources, inhibiting environmental crimes and corruption.

Category 2: Sustainable growth and jobs

This category relates to:

Resilience/Vulnerability to shocks

• What is the level of vulnerability to exogenous and endogenous shocks and natural hazards taking into account the exposure of the country?

Green transition and growth

• What is the risk that the country will not follow a circular, climate- and nature-smart transition and ensure a sustainable growth path? What is the risk that public policies do not address the main issues (relevant/credible/budget allocations)?

Sustainable trade and value chains

• What is the risk that trade and value chains are not supporting sustainable growth and jobs including towards a green and circular economy? What are the risks that supports to trade might cause unintended negative impacts (e.g. land grabbing), including negative environmental impacts?

Mitigation measures may include:

✅ Informing on environmental degradation and climate change risks, notably on particularly vulnerable countries such as SIDS and OCTs.

✅ Addressing disasters associated to the increased frequency and intensity of extreme weather events.

✅ Identifying incentives and promoting options for economic development that go away from overexploitation of natural resources, deforestation, pollution, or biodiversity loss. Limit dependence on non-renewable resources (e.g. oil, gas, mining), avoiding growth vulnerability by promoting economic diversification.

✅ Promoting long term sustainability of value chains, by implementing circular economy principles, ensuring a just transition through an inclusive approach.

Category 3: Key sector policies

National development strategy (main sector in programming frameworks)

• What is the risk that the national development strategy (or alternatively, as in NEAR countries, the main cross-cutting country strategy) is not aligned with the Paris Agreement, or that its implementation is not effective?

Energy

• What is the risk that energy policies do NOT effectively support (relevant/credible/budget allocation/efficient management of resources) a green transformation of the economy (attraction of investments for renewable energy and energy efficiency; improvement of regulatory and market frameworks, and better access for all to affordable, reliable and sustainable energy services, with a strong focus on renewable energy)?

Environment and natural resources and/or other related policies in the country

• What is the risk that environmental and natural resources policies do not effectively (credible/relevant) address environmental threats and challenges for the country and its sustainable development (to preserve, enhance and sustainably use the natural capital, strengthen environmental governance, achieve environmental sustainability, develop the green and circular economy)? What is the degree of exposure of the country to such risks?

Climate change mitigation and adaptation

• What is the risk that climate and disaster risk management policies where they exist do not effectively (and credible/relevant) address climate challenges, in both mitigation and adaptation?

Agriculture, food and nutrition security

• What is the risk that the country does not have a productive and efficient agricultural sector, which does not ensure food security, environmental sustainability and climate resilience for all or part of its population?

Mitigation measures may include:

✅ Targeted assessments to identify environmental and climate change risks that can compromise productivity of key sectors (e.g. agriculture, fisheries, tourism, energy, water, transport, …).

✅ Addressing causes of environmental degradation including direct (e.g. over-extraction of natural resources such as timber or fisheries) or indirect causes through the degradation of supporting ecosystem services (e.g. soil erosion/land degradation due to land conversion/deforestation or inadequate farming practices, water pollution from domestic or industrial sources). To address this point, it can be useful to consider if:

• • the conditions of exploitation of local natural resources or ecosystems are known, e.g. mining in remote places and under extreme geological and environmental conditions; or in the case of forest concessions; or the drivers of land use change to agriculture.
  • there is a risk of political manipulation leading to flawed concessional conditions in new “green” investments (including infrastructure contributing to climate change mitigation).
  • there is an increasing presence of influential medium-sized actors that are not party to multilateral anti-corruption agreements, such as the Extractive Industries Transparency Initiative (EITI) in the mining sector.

✅ Supporting the translation and integration of climate and environmental ambitions at sector level.

Category 4: Sustainable finance, PFM, Transparency and Oversight

Sustainable financing

• What is the risk that the financial system and financial practices do not support investments into environmental, climate and socially responsible projects? What is the risk that financing does not generate inclusive and sustainable economic growth (SDG8)?

Mitigation measures may include:

✅ Supporting institution capacities to identify adequate environmental and climate change expenditures and potential revenues, as well as climate and environmentally harmful subsidies.

✅ Defining incentives to green investments (e.g. through tax exemptions), and supporting their implementation, monitoring and evaluation.

✅ Promoting an improved coherence between policies and financial instruments, so as they can transmit the environmental and climate ambitions of the government.

✅ Using PFM to promote a whole-of-government approach towards climate and environmental action, including through potential green revenue generation and wealth redistribution.

✅ Strengthening the quality of controls by external audits, notably during budget allocation and execution for climate and environmental action.