ABSTRACT
This chapter reviews the defects in traditional aid that inspired National Environmental Funds (NEFs); evaluates the potential effectiveness of NEFs; and looks ahead to issues affecting the development and success of NEFs. Internal assessments at the Bank have determined that the institutional development component of projects fails approximately twice as often as the hard investment component. National Environmental Funds have evolved as a response to the shortcomings of traditional approaches to environmental aid. National Environmental Funds are showing promise as institutions that can build the capacity of governments and NGOs to protect the environment. The legal instrument that establishes an NEF can set out in significant detail the parameters of its operations: its objectives, criteria for spending decisions, investment strategies, voting rules. The legal instrument can include conditions that ensure transparency and accountability. Boards can have reporting requirements and be subject to audits.
