Corruption and integrity risks in climate solutions

Our key takeaway: Corruption and integrity issues in the development and implementation of climate solutions hinder the progress that we’re making on a just transition to a low-carbon economy. Corruption and integrity risks materialises in the following ways: (1) Misuse and diversion of financial flows intended for climate solutions; (2) Climate-washing, which results in misleading investors, regulators and other stakeholders on their ESG credentials and carbon credit claims; and (3) Failure to obtain the free, prior and informed consent (FPIC) of Indigenous peoples and communities throughout the full life cycle of climate projects. As the report published by the Grantham Research Institute and DLA Piper argues, increasing knowledge on the corruption and integrity risks present in climate solutions is critical to “avoid impeding the low-carbon transition” and one that puts people at the front and centre.

Grantham Research Institute on Climate Change and the Environment and DLA Piper published Corruption and integrity risks in climate solutions: an emerging global challenge (October 2023):

• Misuse and diversion of financial flows: One category of corruption and integrity risks in climate solutions is the misuse of finances originally for climate solutions to address climate change. This includes bribery, money laundering, misappropriation of funds and tax fraud. Significant public and private investment is needed to finance the low-carbon energy transition and there are risks that these investments will be “channelled towards private pockets, high-emitting activities operating under the guise of ‘green’ initiatives, or criminal activity.” The report recommends that companies: (1) Undertake “a structured anti-bribery and anti-money laundering risk assessment” to cover climate-related activities and risks; (2) “Take lessons from the company's existing anti-bribery processes where related risk factors exist and corresponding compliance programmes are well established”; and (3) “Ensure appropriate whistleblowing mechanisms are in place.”
  

• Climate-washing: Another category of corruption and integrity risks in climate solutions is the practice of climate washing. Irrespective of whether climate washing is done negligently or with malicious and false intent, the outcome is the same: “Climate-washing can create a false sense of confidence around the implementation of climate action, potentially leading to complacency and delaying effective solutions.” Examples of climate washing include (1) “Misleading advertisements and public communications”; (2) “Misleading environmental, social, governance (ESG) credentials”; and (3) “False or misleading carbon credit claims.” The report recommends that companies should: (1) “Remove barriers between internal departments or business units to encourage communication on climate-related topics,” for instance, between environmental, sales and marketing, and compliance teams; (2) Align net zero pledges with the recommendations put forward by the High-level Expert Group on Net Zero Emissions Commitments of Non-State Entities; (3) “Link compensation packages of executive staff to climate action”; and (4) “Engage proactively with regulators and respond to public consultations and other calls for inputs led by regulators to emphasise the challenges companies face and how regulators can assist.”
  

• Abuse of process: The final category of corruption and integrity risks in climate solutions has severe impacts on people, particularly on Indigenous people and communities: “Failure to obtain ‘free prior and informed consent’ (FPIC)”; and “Conflicts of interest”, where individuals in the public or private spheres influence debates around the priorities of the low-carbon transition. While the principle of FPIC is protected under international human rights law, they are either poorly protected or ignored in the development of climate solutions, and this threatens the “achievement of a ‘just transition.” The report recommends that companies should: (1) “Reform internal processes around FPIC, such as building internal capacity, establishing grievance mechanisms and protections for whistleblowers, and enforcing rigorous internal controls”; and (2) “Implement transparency and disclosure processes for corporate spending and lobbying activities on climate change.”