Climate change funds: safe from corruption?

28 February 2014

Climate change will challenge all of us in the coming years, bringing floods, droughts and stronger storms, and the ensuing misery. To counter global warming, new forms of international cooperation have become an urgent priority.

Cover image of report from the Protecting Climate Finance series

Between 2010 and 2012, governments provided over US$30 billion to fund projects that help countries around the world to either adapt to or mitigate the impacts of climate change. Much of this financial support is channelled through global climate change funds. Taken together, these climate funds are a key weapon in the fight against climate change. But are they safe from corruption?

In five assessments, Transparency International examined the anti-corruption practices and internal accountability mechanisms of seven major climate funds: the Adaptation Fund, the two Climate Investment Fund Trust Funds, two of the Global Environment Facility’s Funds, the UN-REDD Programme and the Forest Carbon Partnership Facility (see table). By highlighting areas where governance should be improved to reduce corruption risks, the assessments aim to bolster the funds’ ability to deliver on their promise. Understand the risks, see our findings

It is too early in the history of climate finance for many corruption cases to have come to light, but it is not too early for precautionary action.”

– From the introduction to our reports

Fund	Description	US$ amount	Countries receiving funds (as of 2013)
Adaptation Fund	Supports adaptation projects in developing countries that are ‘particularly vulnerable’ to climate change, to reduce adverse effects on countries and communities. First global fund to offer direct grants without intermediaries. Created 2007	$184.3 million toward projects approved (as of Dec 2013)	27
Climate Investment Funds	Supports middle income and developing countries with resources to mitigate and manage climate change challenges and reduce greenhouse gas emissions. Comprised of four separate programmes about clean technology, forest investment, climate resilience and renewable energy uptake. Created 2008	Nearly $3 billion toward projects approved; $7.6 billion allocated (as of June 2013)	48
Global Environment Facility	Supports developing countries’ resilience to climate change through two funds, the Least Developed Countries Fund and the Special Climate Change Fund. Focused on helping countries adapt to impacts of climate change. LDCF and SCCF created 2001; GEF established 1991	$986.7 million toward projects approved; over $1.1 billion pledged (as of Sept 2013)	100+
UN-REDD Programme	REDD stands for Reducing Emissions from Deforestation and Degradation; REDD+ is an emerging global system focused on reducing greenhouse gas emissions and preserving forests by valuing them in their standing state, while also improving well-being of forest communities. The UN-REDD Programme assists developing countries to prepare to engage in REDD+ when it is agreed at the global level. Created 2008	$84 million disbursed, $247 million pledged (as of Dec 2013)	17
Forest Carbon Partnership Facility	Supports preparations for a fully operational REDD+ system, by financing projects in developing countries aimed at managing forests sustainably and at conserving or growing forest carbon stocks. Through two separate funds (Readiness Fund and Carbon Fund), FCPF also builds capacity for an eventual REDD+ carbon market. Created 2008	$12.6 million disbursed via Readiness Fund, $260 million received from donors; Carbon Fund yet to disburse funds (as of Dec 2013)	37 via Readiness Fund

The threat of corruption

These climate funds are pioneering new approaches to combat climate change in over 100 countries worldwide. While international cooperation and positive intentions are clearly evident, the complex network of funders, government ministries and implementing agencies risk leaving gaps where fraud and corruption could siphon off funds and divert much-needed resources from projects.

Our Global Corruption Report: Climate Change drew attention to the risks of corruption inherent in a fragmented and complex funding landscape. And as our new assessments note, most recipient countries for climate finance have low scores in our Corruption Perceptions Index, meaning that public sector corruption in these countries is perceived to be high. Whether it’s officials taking bribes, or entire ministries captured by special interests, these risks could jeopardise the important aims of climate finance.

Looking at the national level
Our new global research complements our assessments of the national context in six climate finance recipient countries, which flagged a number of concerns that could undermine the efficacy of these vital funds. The findings of our research on three REDD+ countries are forthcoming.

For example, if a conflict of interest results in a fund official authorising a less worthy project over another, will he be held to account and can his decision be appealed? If corrupt companies or officials collude to build a protective sea wall using sub-standard materials and pocket the profit, what happens to seaside communities when the next storm surge strikes? Or take the case of a country that receives climate finance to keep a forest intact, locking in the greenhouse gases that would otherwise be emitted by clearing the trees. If corrupt behavior allows that forest to be felled anyhow, the local community and the broader climate are adversely affected, while climate finance finds itself twisted into accelerating, rather than arresting, climate change.

Assessing anti-corruption in climate funds

Each report contains detailed maps of the
funds’ accountability frameworks

To check how well these seven international climate funds are protected from corruption, we researched their accountability frameworks and anti-corruption policies. We mapped the internal structures of the funds to see who is responsible to whom, which standards are in place, and where there are ambiguities or oversights that could make a fund more prone to abuse for personal gain.

At the same time, we scored each of the funds on transparency, accountability and integrity criteria. These indicators include practices and principles, such as the funds providing public access to information about their operations, whistleblower mechanisms to call out wrongdoing, the willingness of funds to consult with civil society, and the presence of anti-corruption policies and training for people working with the funds. Together, these indicators constitute good practice and point toward a strong anti-corruption system. Where funds score poorly, it means there are worrisome gaps in their ability to thwart corruption.

How fit are the funds to fight corruption?

Each of the funds has shown a commitment to improve standards since their inception. But while each fund has strengths in certain areas, our assessments reveal noticeable areas for improvement. These include:

None of the funds has a comprehensive, fund-wide zero-tolerance for corruption policy. While some actors within the funds inherit anti-corruption policies from ‘parent’ organisations like the World Bank, the limits of applicability of such policies are not readily apparent at all levels of the funds and at various stages of the project cycle.

Instead, the funds rely on a patchwork of different policies which leave room for confusion about who is accountable to whom, and which procedures apply to different actors. Accountability lines tend to be clearer closer to the core bodies of the funds, but are less well articulated at the national level in recipient countries where projects are implemented.
Most funds have made progress in transparently reporting on their activities and making operational information publicly accessible; some, like the Adaptation Fund and the Climate Investment Funds, have committed to publishing data through the International Aid Transparency Initiative. However, all funds should undertake to publish more information, reports and evaluations in a timely, activity-encompassing fashion. This would enable better monitoring by civil society observers and other stakeholders.
Sanctions for unethical or corrupt behaviour are only partially existent at the funds. Each fund could make clearer the sanctioning procedures and punishments that face fund officials and collaborating partners in the event that investigations uncover improper conduct.
The funds generally lack clear accountability mechanisms for decision-making processes. While the funds have provided some space for civil society observation of their board and/or committee meetings, and some have begun to web-cast key meetings, decisions to keep certain meetings closed or to exclude observers remain too discretionary. Such rulings go against the principle of the public’s right to know how these publicly funded bodies make spending decisions.
When it comes to grievance procedures and complaints mechanisms, the forest-related funds (UN-REDD and the Forest Carbon Partnership Facility) lead the pack. This is largely down to the emphasis these funds place on assuring that vulnerable forest communities benefit from funded projects, as well as the stronger safeguards built into REDD+ at the global level. Nonetheless, all funds could do more to strengthen complaints handling procedures and clarify how citizens can use them.

Green Climate Fund: Future of climate finance?
The seven funds assessed in our reports will soon share the scene with a new and larger body, the Green Climate Fund (GCF). This public-private partnership founded out of the UN Framework Convention on Climate Change was created in 2012 and will become operational this year. The GCF will be a major future conduit of climate funds: estimates suggest it will disburse US$100 billion in climate finance per year by 2020.

While we did not assess the incipient GCF, many of the recommendations that apply to the already active funds hold true for this newcomer. We have already noted that the GCF has room to improve its consultations with civil society and expressed concern about the selection process of a host city for the GCF headquarters. There are growing worries that the GCF is becoming susceptible to undue influence from business while drifting away from its role to catalyse a transition to climate-friendly development. That said, it is encouraging that the GCF has envisaged an independent integrity unit from the outset.

What’s next for the funds?

Each of the funds has been proactively involved in this research process, and they have already started taking our recommendations on board. But there is more to be done.

The funds are still young, and still scaling up. It is imperative that they establish clear, fund-wide anti-corruption policies that include whistleblowing mechanisms for reporting misconduct, sanctions for punishing corrupt behaviour, clarified procedures for public information access and civil society participation, and codes of conduct and training for staff of all involved agencies and implementers.

As the funds increase the scale of their disbursements, and the mammoth Green Climate Fund begins to operate, it is critical to strengthen accountability mechanisms to ensure that climate finance achieves its intended effects. Our planet only has one chance to get this right.

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