Clean Energy: Tackling Corruption in the Transition to Net Zero

Dirty money: the Itaipu Dam on the border between Brazil and Paraguay, which has been mired in various corruption scandals. Image: Deni Williams / Wikimedia Commons / CC BY 2.0

The transition to net zero risks being undermined by a lack of understanding of the risks of corruption in the renewable energy sector. As COP27 gets underway, the question remains: how can the G20 tackle the forthcoming challenges?

If asked to come up with a scenario which ticked all the ‘high risk’ boxes from a corruption perspective, one probably could not do much better than the transition to renewable energy. Juhani Grossmann, Head of Green Corruption at the Basel Institute for Governance, has described the sector as a ‘perfect breeding ground’ for corruption. Prior to COP26, Transparency International stated that ‘corruption remains a major barrier to the success of climate adaptation and mitigation measures’ and called for governments to ‘accelerate efforts towards transparency, accountability and integrity’ to ensure effective action on climate change.

Net Zero: A Perfect Breeding Ground for Corruption

Billions have been invested to date in renewable energy. For example, it is estimated that $80 billion was invested in green energy in Latin America between 2010 and 2015. Globally, wind farms and solar projects have attracted significant investment. Projects often involve partnerships between the public and private sector, and the corruption risks are high given the role governments can play in the ownership or operation of utility companies, and the risks around procurement and licensing. Subsidies and grants are also magnets for corrupt individuals, organised criminals and fraudsters. It is thought that the Italian government lost $5 billion to fraud in relation to programmes for funding energy-efficiency renovations, in what was described by Finance Minister Daniele Franco as ‘one of the biggest frauds in the history of the Italian republic’.

Dealing with the climate crisis will require even more significant investment in renewable energy in the next decade. The International Energy Agency estimates the need for $5 trillion of investment in energy by 2030 to reach net zero by 2050. It is no secret that where there is money, corruption and organised crime follow in its wake.

Corruption risks in the sector are high given the role governments can play in the ownership or operation of utility companies, and the risks around procurement and licensing

Corruption risks undermining the energy transition in numerous ways. It hinders good business practices, making it more expensive to operate and reducing competition. Powerful lobbying groups, such as those representing the fossil fuel industry, may actively work behind the scenes to hamper the transition. Corruption also has a devasting impact on the societies that it permeates, undermining public finances and driving inequality and the uneven distribution of wealth.

G20 to the Rescue?

It is perhaps no surprise that sustainable energy transition is one of the three pillars of the current Indonesian presidency of the G20. As it notes, ‘G20 member countries share a big responsibility in ensuring energy sustainability can run optimally and providing a platform for investment’. Preventing related corruption has been a focus area for the G20 Anti-Corruption Working Group. As the current G20 presidency draws to a close, it is likely that the usual anti-corruption commitments will emerge, including addressing the vulnerabilities associated with investment in the sustainable energy transition. But, as the Accountability Lab has pointed out, ‘despite the earnest anti-corruption commitments made by G20 countries annually, follow-up and delivery on these commitments is a challenge’.

So, where should the G20 focus?

First, there is a need for more data. There is little empirical evidence to date as to the nature and scale of corruption in the renewable energy sector. There is a real need for the G20 to invest in better understanding the drivers of corruption in the sector, develop evidence-based measures for mitigating these drivers, and generate case studies illustrating successes in combating bribery and corruption in this field.

Second, and linked closely to the issue of data, is the issue of transparency. The renewable energy sector is also closely intertwined with other sectors that have a high risk of corruption, such as the extractives industry and the mining of critical minerals. Here, there have been some important and welcome moves towards good governance and increased transparency. The Extractives Industries Transparency Initiative (EITI) has developed international standards for transparency and accountability in the oil, gas and mining sectors. The EITI Standards have been implemented by over 50 countries, shining a light on good and poor practices. While not all G20 countries are members of EITI, there are examples of how the Standards are being used by G20 countries in relation to the energy transition. For example, Germany has used the EITI framework to report on its energy transition, including the socio-economic impact of investment in renewables.

G20 countries must demonstrate that they are pushing for higher international standards and that they themselves are meeting those standards

Third, increased data and transparency on corruption in the sector also serve an important purpose in allowing the public and civil society to hold governments to account. As already noted, there are significant challenges in ensuring that G20 countries deliver on the raft of anti-corruption commitments made to date. Making more information available publicly can only help drive the kind of changes needed. There are some notable examples in the G20 already, such as the launch by Argentina of an open information system (SIACAM), which provides public access to data on mining activity in the country, including the environmental and socio-economic impact.

Finally, and maybe most importantly, G20 countries need to lead by example by building on the good practices already seen in some countries. They have a hugely important role to play, both domestically and internationally. G20 countries must demonstrate that they are pushing for higher international standards and that they themselves are meeting those standards – for example, in relation to beneficial ownership transparency, an essential element in the fight against corruption. G20 countries must also ensure that they vigorously investigate and prosecute cases of bribery and corruption, and that they have the necessary law enforcement resources to do so. In addition, the G20 should commit to building capacity in developing countries, particularly relating to the investigation of corruption and any subsequent asset recovery.

COP27: What Next for the G20?

At the start of Climate Week NYC in September 2022, the new executive secretary of the UN Framework Convention on Climate Change, Simon Stiell, stated that ‘the impacts of climate change grow exponentially worse’. The stakes could not be higher. Corruption risks derailing global efforts to address the climate emergency. As political leaders from around the world gather in Egypt for COP27, addressing the risks of corruption must be a priority.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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Kathryn Westmore

Senior Research Fellow

Centre for Finance and Security

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