Corruption Risk Is Real. And Climate Finance Is Not Immune.

Climate finance serves an important public purpose. So does clean water infrastructure, public health spending, and social housing. All of them have experienced corruption. Climate finance is no different.

The purpose of an expenditure tells us why resources are being deployed. It tells us nothing about whether the institutions, incentives, and systems through which those resources move are immune from corruption. They are not.

Good intentions do not change ordinary incentives

Consider a program established to strengthen flood protection in communities increasingly exposed to extreme rainfall. Its purpose is unquestionably important. But the project still requires decisions about where infrastructure will be built, which communities will be prioritized, who will design the works, which firms may bid, who will evaluate those bids, what materials will be purchased, how construction will be certified, and how payments will be approved.

Each of those decisions creates discretion. Each may also create opportunity.

A procurement official may favor a particular contractor. Specifications may be tailored to reduce competition. A politically connected community may receive priority over a more vulnerable one. Inferior materials may be substituted after inspection. An invoice may reflect work that was only partially completed. A beneficiary may be asked to pay unofficially for assistance the project was supposed to provide free of charge.

None of these risks becomes less plausible because the project happens to address climate change. Indeed, climate finance can combine several conditions that traditionally make public spending difficult to govern: large and increasing financial flows, technical complexity, multiple layers of implementation, urgent delivery pressures, and activities undertaken in settings where institutional capacity may already be constrained.

The climate objective is exceptional. The governance risks are often remarkably familiar.

This is not merely a theoretical concern

Recent evidence from Bangladesh provides a particularly stark illustration. In 2025, Transparency International Bangladesh published a study examining governance in climate finance, including projects financed through the Bangladesh Climate Change Trust Fund. Of the approximately USD 458.5 million approved for 891 projects between 2010 and 2024, the organization estimated that around USD 248.4 million was lost through various forms of corruption.

That figure should be understood for what it is: an estimate produced by Transparency International Bangladesh, not a judicial determination of losses across the portfolio. Its underlying findings are nonetheless difficult to dismiss.

TIB identified alleged bribery and improper transactions during project approval, collusion in tendering and contractor selection, embezzlement during implementation, and improper payments associated with monitoring. Its study also documented examples in which beneficiaries were reportedly charged for goods that projects were meant to provide at lower cost or free of charge.

The significance of these findings is not simply the size of the estimated loss. It is where the risks appeared: approval, procurement, implementation, monitoring, beneficiary delivery. Corruption risk did not sit outside the climate finance project waiting to enter. It could arise within the ordinary decisions through which the project itself was delivered.

Risk follows the money, but it also follows the decisions

A 2024 synthesis by the Adaptation Fund's Technical Evaluation Reference Group examined final evaluations across a portfolio of Fund-financed adaptation projects. Its recurring findings were not principally about bribery or embezzlement.

There is a tendency to imagine corruption primarily as resources disappearing. Sometimes they do. But corruption can distort climate finance long before anything is stolen.

Suppose a government has resources to finance only three adaptation projects. Five regions are eligible. Two face considerably greater climate vulnerability than the others, but another region has stronger political representation and a well-connected construction sector. If project selection is distorted by political patronage, the eventual expenditure may be perfectly documented. The roads may be built. The contractors may submit invoices. Auditors may reconcile every figure.

Yet corruption has already altered the climate outcome, because resources have been directed away from where the underlying vulnerability was greatest. The loss is not confined to any amount improperly obtained by an individual. It includes the adaptation that did not happen elsewhere.

Every distorted allocation has an opportunity cost. Every inflated contract reduces what the same financing could have achieved. Every compromised procurement process weakens value for public expenditure. Every diversion from the intended beneficiary transfers climate risk back onto someone the financing was meant to protect.

Corruption in climate finance is therefore not only a financial integrity problem. It can become a climate effectiveness problem.

Designing for risk, not just responding to failure

Institutions often respond most visibly to corruption after something has gone wrong. An allegation emerges. A whistleblower reports misconduct. An investigation begins. Those mechanisms are essential. But if corruption is understood only through detected cases, institutions will inevitably underestimate the risk.

The more useful question is not: have we found corruption in this project? It is: where could discretion, opacity, or weak accountability distort decisions about allocation, procurement, beneficiary selection, implementation, or verification?

That question belongs at the beginning of a project, not merely at the end of an investigation. It affects procurement strategy. It affects conflict-of-interest controls. It affects beneficiary selection. It affects the independence of monitoring and verification. It affects whether concerns can be raised safely before a problem becomes a scandal.

This is the difference between responding to corruption and designing for corruption risk. And it points toward a broader question that the next piece in this series will explore: not only how to prevent misconduct, but how to build systems in which integrity is the expected outcome rather than the exceptional one.

As climate finance grows in scale and complexity, integrity capacity must grow with it. Because the ultimate objective is not simply to deploy resources under a climate label. It is to translate scarce public and development finance into credible climate outcomes.

A noble purpose can justify an investment. It cannot guarantee the integrity of the process that follows.

References

Transparency International Bangladesh (2025). Governance Challenges in Climate Finance in Bangladesh and Way Forward.

AF-TERG (2024). Second Synthesis of Adaptation Fund Final Evaluations.