5.4
IMPROVING INTEGRITY FOR PRIVATE SECTOR FINANCE
Corruption: a roadblock to ØáÞâÖéÚěãÖãØÚ
Corruption erodes trust. It degrades the quality of climate adaption projects, and may put lives at risk. A multilayered approach that includes inter- national collaboration, strict governance and intelligent uses of technology can help to fight against this.
A mong the biggest obsta- cles to achieving the just transition and tackling cli- mate change is the lack of private capital. While the volume of private investment remains a challenge in the developed world, the scarcity of funds flowing into the developing world is stark. Developing countries often decry the high cost of capital as a major barrier to progress, yet scarcely spoken about is one very costly element that only governments can tackle: corruption. That remains a major factor in geopolitical, project and financing risk. Corruption can significantly under- mine the fairness and effectiveness of climate finance allocation, particu- larly in the regions most vulnerable to climate change, by distorting how funds are distributed, thereby reduc- ing the effectiveness of the intended flows. This not only erodes trust, which is key to attracting private capital, but can also result in low-quality climate adap- tation and mitigation projects if capital is siphoned off or misappropriated to corrupt or inadequately qualified sup- pliers. Additionally, projects may be undertaken where political cronies have influence, rather than executed where the need is greatest. Poorly imple- mented projects with substandard materials may put human lives at risk. Corruption also significantly reduces the likelihood of effectively addressing climate emergencies when they arise. Combatting corruption To address this, it is essential to improve transparency, accountability and gov- ernance in allocating and managing climate funds. Also essential is a com-
bination of mechanisms and regulatory frameworks across all stages of climate finance, from disbursement to fulfil- ment to monitoring and reporting. Technology plays an outsized role in combatting corruption. At minimum, every country should enact a publicly accessible corporate beneficial owner- ship registry so that civil society and donor organisations can identify the actors behind the recipient corpora- tions. Open-access data and reporting databases should be established with relevant information regarding capital recipients and their partners, whether they be national governments, non- governmental organisations or private companies. All elements, including project details, plans, allocations and budgets, should be included for ease of monitoring and tracking. Blockchain and distributed ledger technology can ensure that data is trackable and kept secure on immutable ledgers. The use of artificial intelligence can help spot financial anomalies. Public procure- ment should be digitised to enhance transparency. Satellite imagery can be used to monitor progress and validity. Removing the human element from the process decreases the likelihood of fraud and corruption. Governance structures that include anti-corruption legislation and robust enforcement mechanisms are also integral to the process. Penalties for non-compliance need to be sub- stantially punitive so they are not simply considered a cost of doing busi- ness. Without strong enforcement mechanisms, legal and regulatory frameworks become inconsequential. Consider, for example, red light traffic behaviour. When the risk of detection is low, drivers are more likely to disregard
Lida Preyma, founder and CEO, Cēlandaire Capital
DEVELOPING COUNTRIES OFTEN DECRY THE HIGH COST OF CAPITAL AS A MAJOR BARRIER ÏÊËÍÊÂÍÀÎÎ YET SCARCELY SPOKEN ABOUT IS ONE VERY COSTLY ELEMENT THAT ONLY GOVERNMENTS CAN ϼ¾ÆÇÀ¾ÊÍÍÐËÏÄÊÉ
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Financing a Just Transition
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