Corruption risk in renewables threatens climate action

Alongside time pressures to deliver new projects, other factors, such as the potential access to lucrative contracts and the presence of powerful gatekeepers that oversee processes that have a bearing on the development and operation of renewable energy assets, increase corruption risk. The confluence of such factors have led to corruption scandals in other sectors, such as oil and gas and telecommunications, previously.

The risk of a corruption crisis materialising in renewables is a risk to climate action itself.

There are ever-more frequent reminders of the catastrophic effects of climate change. From wildfires in California, to drought in Europe and extreme flooding in northern China, there have been examples in 2022 alone of how extreme weather events are becoming more normal.

Scientists reckon that, without action, climate change will have a devastating impact on people, property and trade. Food shortages, a lack of fresh water and the loss of low-lying countries and coastal communities are all predicted to materialise if the continued rise in global temperatures is insufficiently checked.

Many policymakers globally have responded to the climate crisis with pledges to tackle the problem. Some have set ‘net zero’ emission targets, at the heart of which are plans to decarbonise the economy – including the energy sector.

There is no time to waste to reduce greenhouse gas emissions – the overwhelming body of scientific opinion is that achieving net zero by 2050, relative to 1990 emission levels, is essential if the world is to be on track to keep the rise in temperatures below the two degree rise that is widely accepted as being the tipping point for catastrophe.

Alongside the realisation that the environment is not OK and that we need to change, and change fast, is growing pressure on policymakers, regulators, and businesses to increase the generation of renewable energy and plug it into national energy grids.

Stretching targets to boost capacity in this regard is already resulting in billions of dollars being spent globally on renewable energy development, with billions more to follow in the years to come in pursuit of cleaner, more sustainable, energy.

There is corruption risk across the various stages of development that renewable energy developers and asset operators need to manage.

Requirements to meet vary from jurisdiction to jurisdiction, but generally developers will require planning permission, environmental permits, licences to generate the energy, and connectivity with transmission networks. The process can be bureaucratic and sluggish, and often governments are only willing to give out a certain number of permits or licenses to generate, transmit or sell the power. That combination of scarcity of permissions and lucrative contracts creates heightened risk of corruption as we have seen before in the context of oil and gas exploration and in spectrum auctioning in telecoms.

That risk is further heightened where there are unscrupulous gatekeepers that can influence the fortunes of renewables companies at various stages of a project. In certain developing countries, for instance, where there are often optimal environmental conditions for renewables development, the corruption risks can be higher, as the gatekeepers are often poorly paid public officials and there is an absence of robust anti-corruption laws or enforcement.

Where there is a risk of delay, with the cost that entails, there is a risk that the gatekeepers act as so-called ‘rent seekers’, seeking a ‘quid pro quo’ for sanctioning development or moving applications towards approval, or even releasing critical components from ports where they may seek to take advantage of customs and clearing agents who are under pressure to get goods cleared.

The bidding process for build and servicing contracts also gives rise to corruption risk, given the length and value of the contracts at stake.

A failure to manage corruption risk properly would add cost to projects, and to the cost people and businesses will be asked to foot the bill for as part of the energy transition. This could embolden climate deniers and those that lobby against the ‘net zero’ agenda. The shift towards renewables requires public confidence that decarbonisation is the right thing to invest in. If public confidence in renewable energy projects is undermined and populist views gain traction among those in positions of power, it threatens progress towards mitigating the worst anticipated effects of the climate emergency.

For renewables companies that fail to properly manage the corruption risk and that fall into the traps laid by those that seek to benefit themselves, there is a risk of cross-border investigations and enforcement action. Pre-eminent global anti-corruption regulators such as the US Department of Justice and Securities and Exchanges Commission, as well as the Serious Fraud Office in the UK, are undoubtedly already monitoring the renewables sector for allegations of corruption against companies that may fall under their jurisdiction. Multilateral development banks like the World Bank, African Development Bank and Asia Development Bank will also be carefully monitoring bank-funded renewables projects.

Renewables companies should not wait until it is too late. The same degree of urgency that is driving the race to renewables should be applied to putting in place appropriate anti-bribery and corruption controls. Renewables companies that are not experienced in dealing with corruption risk should seek help from suitable experienced anti-corruption expert advisers where needed.