Actions to slow climate change or help countries adapt to its effects are increasingly urgent. With this in mind, global climate finance totalled US$546 billion in 2018. Yet corruption in climate finance undermines efforts to reduce emissions and decreases the quality of adaptation infrastructure. At the same time, donors, governments, and others that give finance suffer the loss or misuse of funds.

A thought-provoking U4 Brief highlights some of the risks posed to climate finance by corruption. It also points out that anti-corruption tools in the climate sector are untested and unknown. Yet case studies of corruption can provide useful lessons and a way forward.

Climate finance here is defined to be ‘local, national or transnational financing — drawn from public, private and alternative sources — that seeks to support mitigation and adaptation actions that will address climate change’ (UNFCCC 2020).

The UN’s Framework Convention on Climate Change’s (UNFCCC) Paris Agreement categorises climate finance as: i) mitigation of carbon emissions, to slow and hopefully reverse climate change; or ii) adaptation to the effects of climate change, such as improved infrastructure or secure water supplies for vulnerable populations.

Distribution and risks

The countries that receive the most climate finance are among the riskiest places in the world for corruption. The top ten recipients, which include Bangladesh, Uganda, and Mexico, receive 41.9% of all climate-related overseas development assistance.

There are in-built risks for corruption in climate change interventions. This is because of the nature of mitigation and adaption projects, which are often very large. For example, the Lake Turkana Wind Power Project in Kenya. The risks of such interventions include:

• the large amounts of money that tend to be involved;
• unclear and evolving rules;
• complex institutions and mechanisms for distributing funds;
• inadequate monitoring;
• highly technical science that may be fully understood by only a few programme participants;
• endemic corruption in key sectors, for example, construction, energy, and forestry;
• multiple actors that are subject to varying anti-corruption controls; and
• a spending imperative due to urgency (the climate crisis), which can distract from or supersede illegal behaviour.

Yet there is a lack of research into how these corruption risks undermine climate change interventions. Corruption in the sector can weaken efforts to reduce emissions or prevent countries from adapting to the effects of climate change.

Impacts of corruption on emissions and adaptation

More analysis is needed to understand the precise role of corruption in climate finance, but its potential impact on emissions is clear. Corrupt acts (such as bribery, illegal gifts, kickbacks, unmanaged conflicts of interest, or lobbying) can:

• weaken the quality of environmental regulations;
• reduce the effectiveness of clean energy programmes, by channelling funds into less deserving projects or no projects at all;
• increase rates of deforestation by encouraging authorities to ignore illegal tree-cutting;
• prolong or promote investments in non-renewable energy; and
• enable corporate interests to ‘capture’ individual politicians or the state generally through lobbying, moving government policy away from climate action.

The impacts of corruption on adaptation interventions are more obvious. They include fraud and theft reducing the funds available for activities such as designing adaptive infrastructure, soil conservation, or developing resistant crops. Bribery and unmanaged conflicts of interest cause project actors to be biased when they allocate funding or locate activities. This means adaptation measures fall short, because projects omit the best supplier or most vulnerable community. Corrupt influences also weaken regulatory enforcement of adaptive programmes.

Lessons from case studies

The U4 Brief draws on several case studies of corruption in climate finance. These include bribery in a project to conserve forests in Indonesia; fraud in the construction of wind farms in Italy; and the misuse and stealing of funds meant for a geothermal energy project in Kenya.

The first lesson to emerge is that there have been successes with anti-corruption controls around overseas development assistance. However, huge amounts of climate finance are often diverted outside these well-controlled channels. Therefore, anti-corruption controls on climate finance must be established, coordinated, and evaluated.

Climate finance also has to be better targeted in terms of impact and effectiveness. Strategies are needed to ensure that funds are not stolen, wasted, or directed to suboptimal activities.

Anti-corruption tools give climate change practitioners a better chance of limiting global warming. Examples of tools include transparency in policymaking; accountability in decision-making; ‘bottom-up’ engagement with climate-affected communities and civil society; controls around fraud, bribery, and procurement; regulation of lobbying; and financial monitoring.

A number of climate change interventions already incorporate such tools — for example, the UN’s Reducing Emissions from Deforestation and Forest Degradation (REDD+) programme. However, the mechanisms that contain anti-corruption measures may not be those that receive the most investment from donors.

The Brief also observes researchers that have studied the success or failure of climate change interventions rarely focus on governance issues. Lack of analyses in this area means that there remains insufficient mapping of corruption risks. It also means that anti-corruption tools in the climate change sector tend to be undeveloped, untested, and poorly evaluated.

A final lesson is that the focus of anti-corruption efforts needs to be on the three sectors of renewable energy, low-carbon transport, and energy efficiency. Urgent research is required into how corruption undermines these sectors’ climate goals, and how it can be prevented.