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18 October 20234 minute read

New legislation and guidance needed to address corruption and integrity risks in climate solutions

Corruption and poor integrity in climate solutions are jeopardising the transition to a low-carbon economy by diverting critical funds towards private pockets and creating the illusion of progress.

DLA Piper, in collaboration with the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science, has published a report calling for strict action against climate-washing, poor integrity, and corruption in climate solutions.

The report ‘Corruption and Integrity Risks in Climate Solutions: An Emerging Global Challenge’ highlights the urgent need for robust governance and legislation to combat three core challenges:

1. Financial Misuse and Diversion: Trillions of dollars of public and private investments are crucial for a sustainable future. Risks in this category include bribery, money laundering, misappropriation of funds, and tax fraud. These risks are often criminal acts, but there is limited recognition at the governmental level of how anti-corruption laws apply to climate solutions. Recommendations include issuing clear guidance, amending legislation, and implementing compliance mechanisms.

2. Climate-Washing: This category refers to acts that mislead investors, consumers, or the general public regarding climate-related impacts. Key risks include misleading advertisements, deceptive ESG credentials, and false carbon credit claims. Existing laws can address these risks, but the report recommends strict enforcement, specific legislation, and mandatory climate and sustainability reporting.

3. Abuse of Processes: Risks arise from dishonestly abusing legitimate processes in climate actions. Risks include the failure to obtain free prior and informed consent and conflicts of interest. The report suggests international organizations, regulators, legislators, and companies address these risks, including the establishment of watchdogs and mandatory due diligence policies.

Key recommendations include a new framework for understanding corruption risks in climate solutions and widescale expansion of existing legislation coupled with targeted new guidance.

The past year has seen growing awareness of the dangers posed by corruption and poor integrity to climate solutions, with high-profile media reports highlighting specific instances of corruption. Public authorities must be adequately equipped to monitor and combat these risks. The report introduces a novel framework for understanding these challenges, emphasizing that while ambitious climate commitments are crucial, they must be supported by robust governance structures to ensure credibility. The private sector has a role to play too with the report calling on companies to leverage existing compliance mechanisms to meet climate related risks and take lessons from the broader anti-bribery arena.

Laura Ford, Partner, and UK Corporate Crime, Investigations & Compliance lead at DLA Piper comments: “We have identified corruption and integrity risks in emerging climate solutions in both the public and private sectors, highlighting the need for safeguards against these practices. The nexus between climate change and corruption is of increasing importance as we strive for a low-carbon future, with high-profile investigations revealing an uptick in disingenuous initiatives and collusion. The scale of finance involved in climate solutions makes corruption a critical concern, and rapid transformation demands credible implementation”.

Jean-Pierre Douglas-Henry, Partner, and Managing Director – Sustainability and Resilience at DLA Piper, said: “While the acceleration of climate solutions in its many forms must continue, equally crucial are robust governance structures to ensure those solutions are delivered credibly and efficiently. This emerging challenge requires collaboration and engagement from regulators, enforcement agencies, legislators, and the private sector if we are to tackle the abuses that impede the low-carbon transition”.

Tiffanie Chan, Policy Analyst, at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science, added: “Without proper safeguards against corruption and poor integrity practices, resources for the delivery of climate solutions may be diverted away from the pursuit of genuine progress. The necessary scale and speed of transformation for a low-carbon transition makes corruption in climate solutions a high-risk area, and one that is ripe for swift regulation”.

The report calls for regulators and enforcement agencies to undertake a proactive comprehensive analysis of fraud risks in carbon pricing schemes. It also recommends transparency requirements for corporate spending and lobbying activities related to climate change and urges international actors to control corporate participation in international climate negotiations, especially in anticipation of COP 28 later this year.

About The Grantham Research Institute on Climate Change and the Environment (GRI)

GRI was established in 2008 at the London School of Economics and Political Science. The Institute brings together international expertise on economics, as well as finance, geography, the environment, international development and political economy to establish a world-leading centre for policy-relevant research, teaching and training in climate change and the environment. It is funded by the Grantham Foundation for the Protection of the Environment, which also funds the Grantham Institute – Climate Change and the Environment at Imperial College London.