Earlier this year, the IPPC published yet another report underscoring the fact that rapid climate action is needed to limit global warming and avoid further irreversible, devasting environmental impacts. Over the next decade, the report calls for urgent, unprecedented social and economic transitions to reduce emissions and enable climate resilient development for vulnerable people.

Our response to the climate crisis has not been urgent or aggressive enough. And as our state of climate emergency reaches a darker shade of red, we need unparalleled climate and green investment and finance in sync with the decisive transition from fossil fuel dependency to renewables.

Now, more than ever, it is imperative to rapidly scale up climate action and make sure that that action is effective and efficient. At the same time, these efforts must augment equitable social and economic development and fashion a just transition from brown to green economies. This will take courage and honesty to adhere to rules of integrity and accountability.

Navigating Needs and Scarcity  

First, avoiding environmental catastrophe demands dramatically increasing investments toward carbon neutrality and eco-sustainability around the world. The State of Climate Action 2021 indicates that to limit global warming to 1.5 degrees Celsius requires a fivefold acceleration in  phasing out unabated coal electricity generation, a threefold increase in annual gross tree cover,  a twofold boost in crop productivity and a thirteenfold ramp up of climate finance.

The OECD estimates $ 6.9 trillion is needed for infrastructure investment to meet the 2030 climate and development objectives. Currently, the  Climate Policy Institute estimated that climate finance (broadly is understood as private, public and other alternative sources of money that should support those investments) reached $632 Billion in 2019-2020.  And, where climate action depends on how we generate and use energy, the IEA estimates that today’s annual investments in power generation, infrastructure, low/zero carbon technologies and fuels which amount to around 1.3 trillion, will need to increase to 5 trillion per year by 2030.

Second, there’s simply not enough public money to finance this sort of climate action. As such, the strategy has been to establish or promote a variety of financial instruments to leverage and further mobilize private investment and spending.

At the global level, the UN Framework Convention on Climate Change (UNFCCC) serves as the main forum for governments as they negotiate targets and national ambitions. The UNFCCC has designated the Green Climate Fund (GCF) and Global Environment Facility (GEF) to provide financial resources to developing countries to meet the agreed full incremental costs of implementing climate action.

There are other pathways as well. The Adaptation Fund—which supports the Paris Agreement—serves “projects and programmes that help vulnerable communities in developing countries adapt to climate change.” Another instrument is the Climate Investment Funds, a partnership of multilateral development banks that supports initiatives to reduce investment risks and barriers to new technology development, scale up climate solutions, open sustainable markets, and mobilize private capital for climate action.

In addition, a number of public institutions that provide multilateral and bilateral climate finance.

And, at different strata, a range of public, private, and public-private funds, financial, or fiscal instruments also have emerged to incentivize private sector investment in mitigation, adaptation, and nature-based solutions including climate bonds; green bonds; private equity funds, low or zero interest loans, guarantees, tax credits, market mechanisms, off-take agreements, climate finance auctions and similar innovative mechanisms.

The availability of climate risk premiums or insurance to cope with climate change impacts are increasing, but financing for loss and damage caused by climate change remains an open issue.

The Challenge of Corruption

All this momentum gives some hope of overcoming the challenges we face. But because not everyone on the planet is invested in the planet in the same way, some unintended consequences of climate finance and investment could undermine its objectives. We need to act to prevent that from happening.

For some, climate liquidity presents an opportunity for corruption –  classic fraud triangle shaped abuse of entrusted power for private gain. Similar to development aid leakage to offshore financial centers in highly aid-dependent countries, research has revealed the vulnerability of climate finance to embezzlement and procurement fraud.

Fraudsters have manipulated environmental impact assessments to bypass regulations in adaptation projects, and have abused the carbon trade by manipulating baseline and emissions reduction calculations to score windfall profits. Fiscal incentives to grow renewables and low carbon technology enable some players to gain preferential premiums through rent-seeking, and result in increased costs for consumers. In some countries, these are harbingers of the “climate finance” or “green resource” curse that drives poverty, inequality, and the amalgamation of wealth in the hands of oligopolies.

Akin to the corruption risk is a danger that less regulated climate trusts and private equity arrangements are misused to launder illicit proceeds. Take the chilling revelation that U.S. private investment, venture capital funds, and hedge funds (an $11 trillion industry)  are not required to verify the identity of investors nor the origins of the incoming cash.  Demands and action to promote better regulation and extend beneficial ownership transparency have not erased the  challenges that persist in enforcement.

Finally, corruption exacerbates environmental harm by enabling the illegal or unsustainable extraction of natural resources, impacting on our vital carbon sink including forests. The climate finance agenda also is dampened by the oft common practice of the oil, coal, and gas (OCG) industry  to use tea money or make steep donations to influence policies and gain access to special benefits, subsidies, or public licenses. (Note: renewable businesses also are apparently not immune to such practices). OCG industry subsidies are estimated at $775 billion to $1 trillion per year, not including support from export credit agencies.   

Increasing Transparency and Accountability

The good news is that climate finance is an opportunity to usher in reforms that increase transparency and accountability and weaken corrupt systems.  Implementing our existing know-how to do this involves two key actions:

Strengthen climate finance transparency:  Numerous initiatives already exist to enable public accountability in climate finance, including the disclosure of public subsidies and sources and sub-sources (i.e. financial intermediaries), as well the tracking and reporting public budget expenditures and revealing how and what private climate finance is being mobilized. Releasing key project information (including EIAs) and consulting with stakeholders, coupled with adopting policies on financial sector and private sector transparency and open competition can increase the scale, efficiency, and quality of climate investments. Efforts such as those being undertaken by the EU Emissions Trading System also aim to bring transparent accounting practices to carbon markets.

Ramp up integrity standards and accountability mechanisms: Strengthening and implementing due diligence and accountability standards is an important spur for reform. It builds public confidence in the ways public and private money is being spent, as well as its impact. It also can catalyze investments at scale. Private and public organizations implementing climate projects also need to embrace effective systems for reporting wrongdoing—and protect whistleblowers from retaliation. This is a critical step to preserve the financial, operational, and environmental integrity of climate actions and ward off abuse by criminal elements.

Transformational Possibilities

The practices of the Green Climate Fund, which delivers support for adaptation and mitigation actions to developing counties (many of which are vulnerable to sever climatic impacts as well as corruption) is an excellent example. Its implementing partners are expected to steward integrity standards and polices based on international best practices.

The GCF has adopted an zero tolerance policy for all forms of corruption, retaliation, money laundering, and terrorist financing. It also requires due diligence on beneficial ownership of its direct implementing partners. Whistleblowers have a multilingual 24/7 hotline, and the Fund obliges all of its accredited entities to have channels for reporting suspected wrongdoing that are “easily accessible and available in local languages.”

The GCF’s whistleblowing policy is progressive for an international organization, opening the definition of “whistleblower” to any person or entity who reports wrongdoing to the Fund, and not merely employees. The GCF also ensures the confidentiality of such reports, allows anonymous reporting, eases whistleblowers’ burden to establish retaliation, and even provides the possibility of protection and remedies to third parties.

If these standards become obligations of the chain of actors responsible for delivering and implementing GCF proceeds they could have significant impact on climate finance delivery at the project level—creating policy changes in public or private institutions with significant multiplier effects. Yet the Fund has not yet updated its fiduciary principles and standards which would provide greater clarity that its implementing partners (accredited and executing entities)  align with the Fund’s integrity policies. At present, the GCF allows implementing partners to apply their own integrity and procurement policies. More needs to be done to systematically monitor how and to what extent those integrity policies are applied in GCF projects. Proactive integrity reviews provide an objective basis to move toward this objective.

This is important. A case that came to light last year involving corruption in a climate project demonstrates that urgent reforms are needed in the whistleblowing systems and cultures of organizations within the UN system and among other GCF partners to safeguard climate finance—and the brave persons who speak up about wrongdoing.

Making progress rapidly is difficult when reformers are up against a system of snail-like bureaucracies, highspeed capitalists, and organized crooks. What can hasten the pace of change is the unabashed voices and passion of whistleblowers, concerned citizens, and young people calling out what’s wrong and pressing leadership to fix it. The courage and inspiration to speak out and demand transparency, accountability, and integrity from states and corporations on climate action is critical to keep the momentum we need to meet the decade of challenges ahead.