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Keep corruption out to halt climate change

Hurricane Sandy was a modern storm. After bearing down on the Caribbean she coursed northwards, but rather than tapering off over cool mid-Atlantic waters, warmer ocean temperatures meant that she built up steam, turned around and headed inland. Sandy affected 24 of the 50 United States, inflicting around US$65 billion in damages. In Cuba the cost was US$2 billion, and in the Bahamas US$700 million. One year later on the other side of the planet, Typhoon Haiyan cost the Philippines some 6,200 lives and US$878 million in damage.

Global warming is increasing the frequency and intensity not only of storms, but also of heatwaves, floods and droughts.

Crucial funds to fight climate change

While governments dole out billions to mop up the fall-out of climate change, a separate tranche of money – climate finance – is pulling in the opposite direction, trying to subvert disaster before it strikes. Since 2010, upwards of US$30 billion in donor money has been spent in developing countries on trying to lessen climate change (through forest conservation and clean energy, for example) and equip communities with the technology, infrastructure and knowledge to survive its effects. Combined with allocations from recipient countries’ national budgets, climate finance is becoming a weighty pot of money.

Corruption could cripple climate finance

Image of Zahir from Bangladesh"In Bangladesh the government has its own policy on information disclosure, as do the 37 agencies responsible for the delivery of climate finance. Data provided by government ministries, donor websites and think tanks was at times contradictory, making it hard to know what money was going where. Especially given recent scandals over political influence swaying decisions over the allocation of climate resources, we need more proof that decision-making is transparent, clean and fair."

– M. Zakir Hossain Khan, Transparency International Bangladesh

As climate kitties continue to grow it is crucial that they, like our climate, are guarded against risk. Corruption is one such risk. The current top 10 climate finance recipients are India, Indonesia, Brazil, Mexico, Vietnam, Egypt, South Africa, Kenya, Thailand and the Philippines. These countries scored between 27 and 42 in our 2013 Corruption Perceptions Index (where 0 means a country is perceived as highly corrupt and 100 that it is very clean). Only two – Brazil and South Africa – scored above 36. In-country, climate finance will be destined for sectors – such as construction, public works, utilities and power generation – that are some of the most susceptible globally to shadow practices like bribery or bid rigging.

Climate money will inherit many of the risks inherent in public financing arrangements, but it also presents new ones. Efforts to expedite investment in climate change defence have led to a burgeoning of new bodies tasked with channelling, allocating and spending climate finance, which now co-mingle with older institutional architectures.

This complex and fragmentary funding landscape complicates efforts to track financial flows, and to ascertain who should be held accountable for decisions and results. The required scale of investment will also generate new hybrids of public-private financing models, inevitably resulting in an accountability trade-off, with corporate secrecy habits often trumping state accountability requirements. Opacity is not always hiding malpractice of course, but it does raise the stakes.

Corruption could render climate finance a poisoned chalice. If money intended for building a coastal defence wall were to end up in an offshore bank account, for example, or was allocated based on bribes, not merit – that wall might never be built, or might be badly built, meaning the next time a typhoon hits communities are swallowed by a tidal surge. Elsewhere, a group of carbon traders might fiddle the books and sell fake carbon credits to large manufacturers wanting to trade rather than reduce their greenhouse gas emissions. The result: carbon markets actually increase global warming rather than halting it.

Finding the weak spots in climate finance

Image of Haifa from Maldives

"Nowhere in the Maldives was there a list of climate projects. We had to know that a project existed in order to be able to investigate the amount of funding it was receiving. We also found the criteria for projects very questionable, with no real explanation for why certain islands were selected and others overlooked. Donor governments should be encouraged to communicate spending criteria more openly and publish these so that climate-affected populations know what money they might be eligible for. This will bring greater transparency to decision-making processes, not only money flows."

– Haifa Naeem, Transparency Maldives

Keen to avoid such eventualities, our climate team have been carrying out corruption risk assessments in their countries. Their findings point to a number of weak spots – institutional shortcomings, policy gaps, financial opacity or discretionary decision-making – that could increase the chances that climate money ends up squandered or in the wrong hands.

In the Dominican Republic, for example, the public budget is divided between several hundred separate accounts – an enigma for the most dogged of sleuths. In the Maldives, certain islands are given money for climate defence, while others are not. In the absence of clear eligibility criteria, what is to stop cronyism from swaying spending decisions? In Kenya, NGOs that received climate money are obliged to report on their activities to the country’s NGO Board, but many do not, effectively giving them free rein to spend as they will.

Jamming the brakes on climate finance is not an option, as recipient countries need and deserve it. Instead, these funds could become their own insurance policy – climate money could be spent on catalysing reforms in the short-term that help galvanise a stronger, more reliable investment architecture for the future.

"Home!" she says, gesturing to a half-finished frame of a building, "is it a home?".
Read a story of promises broken in cyclone-ravaged Bangladesh

So what are some solutions?

Our research in six countries has shown there are readily available solutions to help ensure the efficacy of climate finance. These include:

  • A clear and consistent system of budget classification that allows the identification and tracking of climate resources across countries and sectors.
  • A centralised independent body to track all investment entering and distributed within a country.
  • Better accountability metrics that log and monitor climate finance volumes, target sectors, projects and countries, to offer greater assurances that spending is need-driven.
  • State audits and performance evaluations of all climate projects, supported through civil society participation. These reports should be available for public comment.
  • Harmonised fiduciary standards for all climate funds, so as not to overburden recipient institutions with different sets of requirements.
  • Adequate resources for technical assistance and consultation processes when projects are designed.
  • A formalised space for citizen participation at all stages of a climate project’s cycle – from design, to procurement, to monitoring and evaluation, to complaints management.

Problem, solution
In Mexico, parastatal agencies like public trusts and national credit institutions (including national development banks) execute a significant share of climate projects in the country. These organisations – which mix public investment with private enterprise – are granted significant administrative independence meaning that they tend to operate with high levels of secrecy, even when dealing with public resources.

In Peru, a good practice to be highlighted is the Rendir Cuentas (accountability) initiative, a national project run by NGOs that are implementing climate projects. These organisations regularly report on their finances and activities using an online platform, setting a strong benchmark for transparency and accountability.

Six Transparency International chapters have assessed the climate finance landscape in their countries, offering recommendations to ensure that these vital funds achieve their aims and aren’t lost to corruption. You can access the reports below.

Read stories from each of the countries assessed and get the reports

Download the Assessments of Climate Governance for:
Bangladesh | Dominican Republic | Kenya | Maldives | Mexico | Peru

  • In Bangladesh, a visit to a village threatened by rising waters prompts the question: where have the country's climate finance funds gone?

    Image: Transparency International / Alice Harrison
  • At a gathering in the Dominican Republic, six of our chapters delved into corruption risks in climate finance and discussed safeguards against them.

    Image: Creative Commons, Flickr / ali_pk
  • With climate change causing widespread drought in Kenya, increasing numbers of people are being displaced from their lands. This is exacerbated by corruption in the forestry sector and dodgy land titling.

    Image: Creative Commons, Flickr / imagesbywestfall
  • When the Maldives' government held its famous underwater cabinet meeting, it drew attention to the threat climate change poses to island states around the world. Climate funds are intended to an antidote to this threat, but they can be sunk in the murky waters of politics and procurement, as our chapter in the Maldives explored in its research.

    Image: Courtesy, Mohamed Seeneen
  • Large climate funds like the UN Clean Development Mechanism are creating projects to combat climate change around the world. But how much say do local communities have about the projects, and how much information can the public get its hands on? Our chapter in Mexico investigated – see what they discovered.

    Image: Creative Commons, Flickr / future15pic
  • In Peru, climate change is melting Andean glaciers and hitting rural communities disproportionately hard. Millions of dollars of climate finance are flowing in to try to mitigate the effects, and our Peruvian chapter is following the trail to ensure that the funds reach their intended targets.

    Image: Transparency International / Alice Harrison

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