This paper investigates the interlinkages between public financial management (PFM) and climate change by focusing on greening public procurement (PP). The research focuses on the role of the PFM environment in mainstreaming green considerations into public procurement to ensure government spending contributes to reductions in CO2 emissions. To this end, three features of the PP function are examined – its form of organization (degree of centralization), operation mode (e-procurement), and financial conduct (Life Cycle Costing methods). For this purpose, extensive desk research and interviews with relevant stakeholders in three selected case study countries (The Netherlands, Austria, and South Korea) were conducted.

The study first reveals that a certain degree of centralization is necessary to mainstream environmental considerations into the PP function and institutionalize GPP. Second, e-procurement is seen as an effective enabler for including horizontal policy goals, such as environmental considerations, in the PP function. Third, although LCC can be helpful, it is not considered crucial for greening.

The following key success factors for greening PP can be derived from this research: The GPP endeavor should be planned along with the various steps of administrative reforms. Merely applying tools without a proper implementation process will not lead to success. Any modification to the PP system should be addressed through a comprehensive change process inclusive of all relevant stakeholders and the whole supply chain. A shift in paradigm concerning greening PFM practice as a whole, allowing for climate-informed decision making, is necessary. This requires embracing a holistic approach and considering a greening of the whole PFM cycle by implementing measures that help generate information on negative environmental externalities caused by public sector activities as well as on the financial and other impacts of climate change on public finances.

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This paper is a product of the PEFA Research Competition 2020: The Interplay of Climate Change and Public Financial Management. The PEFA Research Paper Series provides open access to PEFA-sponsored research to disseminate quickly knowledge that contributes to ongoing discussions about public financial management (PFM) around the world. The broader objectives of the PEFA Research Competition are to contribute to addressing gaps in knowledge on fiscal management, how to improve PFM systems, and the practical implementation of PFM reform. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in the papers are entirely those of the authors. They do not necessarily represent the views of the PEFA Program or those of the PEFA partners.