Topic Guide: Corruption and Climate Finance

Climate finance encompasses such a broad range of activities that risks during the implementation phase vary significantly depending the type of finance (for example, grants, concessional loans, private equity or carbon crediting schemes), project (for example, adaptation, mitigation, REDD+) and sector (for example, renewable energy, forestry, infrastructure). For instance, a significant proportion of climate finance is currently being spent on “readiness” support (which often involves institutional capacity building such as through training courses and consultancies) and presents very distinct corruption risks when compared to something like the construction of a large infrastructure project like a hydropower dam or floodgate.

Institutional readiness funding may be subject to risks such as nepotism or kickbacks in the selection of consultants or, as was documented in the Democratic Republic of Congo REDD+ Readiness process, government representatives paying a percentage of per diems received to officials higher up in exchange for being selected to attend a workshop.[1]

For large-scale infrastructure projects, other risks in addition to bribery and nepotism in the awarding of contracts may include the fraudulent manipulation of data in environmental impact assessments or the siphoning off of funding through abuse of the public procurement process.[2] For project-based finance, a challenge across the board is that the sectors involved have historically been vulnerable to corruption. For instance, the World Bank estimates of corruption in the construction and infrastructure industries accounts for anywhere between 5 per cent to 20 per cent of the total costs in developing countries.[3]

A further challenge is that climate finance is managed and delivered by a multiplicity of actors (UN agencies, companies, local government authorities, ministries, to name just a few) through complex (and often unclear) chains of accountability, all of which tend to have different governance standards and related corruption risks. Transparency International’s research into the governance of multilateral climate funds raised concerns that accountability is passed down the chain of command from an international fund to an implementing entity, and further displaced downstream via sub-contractors, and there is little clarity about where responsibility lies if corruption occurs.[4]