Climate finance has become a cornerstone of global efforts to combat climate change, underpinning initiatives for mitigation, adaptation, and addressing loss and damage. However, its success hinges on two critical but often overlooked elements: accountability and supply chains. Insufficient accountability leads to the loss of valuable funds through fraud, corruption, and rent-seeking and causes harm to beneficiaries. On the other hand, the lack of transparency in global supply chains frequently masks environmental degradation, labor exploitation, and unsustainable practices—issues that can undermine the very objectives climate finance aims to achieve.
As financial demands in developing countries rise due to the worsening impacts of climate change, some estimates suggest that developed nations will need to provide $6.5 trillion in funding by 2030 to address these pressing challenges. Yet, the effectiveness of climate finance depends on more than just its scale. Without strong accountability frameworks and clear visibility into the supply chains tied to funded programs and projects, even the most well-intentioned investments risk reinforcing environmental damage, perpetuating social inequities, and facilitating the loss of valuable resources.
Jonathan Mead, Transparentem’s Director of Investigations, explained during a panel on accountability in climate finance at UNCCC COP29,
“The materials used in projects funded by climate finance typically pass through multiple tiers in the supply chain before arriving at the project site. These materials often originate from raw material sourcing—where some of the most severe human rights violations and environmental abuses are most likely to occur.”
This connection between climate finance, accountability, and supply chains underscores the urgency of addressing hidden risks and fostering transparency in supply chains to ensure meaningful, sustainable outcomes.
This is where Transparentem makes a difference. Through comprehensive investigations across all levels of the supply chain, we uncover environmental damage and human rights abuses linked to climate projects. But identifying these issues is only the beginning. We then work to ensure these problems are effectively addressed and resolved, leveraging grievance mechanisms to hold institutions accountable and safeguard against future harm.
What is Climate Finance?
Climate financing refers to the flow of funds aimed at addressing climate change. These funds come from various sources, such as governments, multilateral development banks and institutions, private investors, and international organizations, and support a range of efforts, including:
- Mitigation: Reducing greenhouse gas emissions.
- Adaptation: Building resilience to the impacts of climate change.
- Loss and Damage: Addressing the consequences of climate-related disasters.
For developing nations, this financial support is essential—not only for building climate resilience but also for transitioning to sustainable, low-carbon economies in a way that is equitable and just.
In 2021 and 2022, average global climate finance flows—accounting for private and public, domestic and international—reached almost $1.3 trillion.
Grievance Mechanisms for Accountability in Climate Finance
For organizations distributing climate finance, grievance mechanisms are a critical tool to address challenges and risks within funded projects. They provide a structured process for stakeholders—such as local communities, workers, and civil society organizations—to raise and resolve concerns related to environmental harm or social injustices associated with financed initiatives, ensuring accountability and alignment with climate and social goals.
However, grievance mechanisms frequently fail to provide solutions for abuses beyond the first tier of the supply chain, such as the procurement of raw materials. This gap poses a serious risk for climate finance, as projects may inadvertently perpetuate unethical and unsustainable practices, thwarting a just transition to a low-carbon economy.
Transparentem’s investigations into deeper supply chain tiers and our efforts to enhance grievance mechanisms help institutions ensure that grievances are reported and resolved and that climate finance objectives are met.
Our approach unfolds in three key steps:
- Identifying Risks: Uncovering labor abuses, environmental violations, and unsustainable practices tied to climate finance projects, particularly in the supply chain.
- Remediating Harm: Activating grievance mechanisms to prompt swift corrective actions and prevent further harm.
- Improving Systems: Helping climate finance institutions strengthen their environmental and social safeguards as well as their grievance mechanisms by integrating deeper supply chain concerns, continuous monitoring, and enhanced stakeholder engagement.
Example in Action
Consider a hypothetical scenario in which a development finance institution directs climate finance to a wind power project to reduce reliance on fossil fuels and create green jobs. On the surface, the project may appear sustainable. However, Transparentem’s investigations into deeper supply chain links reveal forced labor at the factories producing the wind turbine engines.
To address these abuses, we present our findings to the finance institution’s grievance mechanism, engage the companies concerned, and work to ensure that the identified issues are addressed and resolved. Beyond remediation, we work with the finance institution to enhance its grievance systems, and safeguards enabling it to proactively detect and address similar problems in future programs and projects without assistance from Transparentem.
Building a Future of Accountability and Sustainability
As climate finance scales to meet global challenges, the need for transparency and accountability grows in tandem. Institutions managing climate finance must look beyond surface-level assessments to uncover and address risks and systemic abuses within the deeper tiers of their supply chains. Achieving this requires implementing robust due diligence processes, utilizing investigative insights, and enhancing grievance mechanisms to effectively resolve issues not prevented through due diligence.
