Unlocking Green Finance: Transparency as the Key to Climate Action
Developing nations face several challenges in accessing sufficient funding for climate adaptation and mitigation despite global pledges. The private sector’s hesitation to invest in green projects stems from several factors, including financial risks, regulatory challenges, and market dynamics.
The transition to a low carbon economy is creating unprecedented opportunities for growth, profitability, and market leadership. We are looking at a trillion-dollar industry spanning a multitude of sectors, including renewable energy, transportation, infrastructure, and agriculture.
Over $100 trillion in investments is needed by 2050. Countries and companies alike have committed to net-zero targets creating an enormous total addressable market. The political will is there, even if it takes a hiatus for a few years in some countries. But political mandates are also short in comparison to current climate and more importantly, business strategies. While some companies use political cycles as an excuse for inaction, market leaders understand the opportunity before them.
Transparency and Corruption
Mobilizing the private sector has proven to be elusive and some very real challenges exist. Global banks have allocated billions of dollars toward climate action, yet the emerging markets cannot seem to access these funds. Aside from the financial, regulatory, and market dynamics at play, the lack of transparency and corruption in some of these markets play a significant, albeit seldom spoken about, factor. Make no mistake, private money will not flow when corruption is simply a part of doing business; or even if there is the slightest chance that money is averted to the wrong hands and regulatory fines could be levied in multiple countries that might be ten times or more the value of the investment. Reputational risk is simply not worth it.
The key is transparency; not only in the project itself but of the participants involved. Technologies like blockchain, standardized reporting frameworks, and beneficial ownership registries can significantly enhance transparency and accountability in climate finance allocation.
Blockchain could be key
Blockchain and distributed ledger technology can ensure that data is trackable and kept secure on immutable ledgers. Once data is entered, it cannot be altered, ensuring a reliable and verifiable audit trail of fund allocation, usage, and reporting of outcomes.
It can also provide real-time transparency where stakeholders (governments, donors, investors) can track the flow of funds in real-time, reducing the risk of corruption, misappropriation, and fraud.
Smart Contracts ensure that funds are released only when predefined conditions (e.g., project milestones) are met which minimizes delays and ensures accountability. Independent validators can confirm transactions, promoting trust without relying on central authorities. Blockchain can create transparent carbon markets, reducing double-counting and fraud in carbon credit issuance and trading which enhances market integrity and investor confidence. Project funding can be tokenized, enabling fractional ownership and democratizing investment in green projects.
Challenges of blockchain are correspondingly plentiful. There is a technical complexity present, where implementing and maintaining blockchain systems requires specialized knowledge that may be scarce in some developing countries.
Often, an infrastructure investment is necessary which can require significant capital. While transparency is paramount, sensitive financial data may need protection, requiring careful system design. Ensuring that blockchain systems comply with local and international data protection laws can be complex. Some blockchain networks, especially those using Proof-of-Work (PoW), consume large amounts of energy. However, Proof-of-Stake (PoS) and other energy-efficient models are emerging as alternatives.
Many countries lack clear regulations for blockchain applications, creating uncertainty for investors and project developers and different regulatory environments can complicate international climate finance transactions. In some regions, basic digital infrastructure and internet access are insufficient for implementing blockchain solutions.
Training and partnerships
Overcoming these challenges is not insurmountable. Capacity building including training and technical assistance will help countries build expertise.
Partnerships between governments, technology companies, and non-governmental organizations (NGOs) should be encouraged to co-develop and implement blockchain solutions.
Multilateral institutions could be leveraged to fund pilot projects. As an example, the World Bank has issued blockchain-based bonds to enhance transparency and efficiency in fund allocation.
Clear regulations for blockchain use in climate finance should be established, ensuring compliance with international standards. Countries should prioritize building the infrastructure needed for digitization.
Many technological advancements were born out of necessity during the global pandemic, yet some countries were left behind because they did not have adequate infrastructure. Entrepreneurs saw the world open as an obtainable market, if they had access to the internet.
Climate finance is certainly driving innovation in clean tech and green tech, but to deploy this technology, reliable infrastructure is needed. This infrastructure investment brings a myriad of benefits, including increased financial inclusion which is necessary for financial products like micro-lending. With the advent of Artificial Intelligence, countries without proper digital infrastructure risk falling even further behind.
Standardized Reporting
Blockchain on its own is only one piece of the puzzle. Standardized reporting ensures that all stakeholders use consistent metrics, definitions, and formats when documenting climate finance activities.
The Task Force on Climate-Related Financial Disclosures (TCFD) and Global Reporting Initiative (GRI) are two such frameworks that have received international acceptance and adoption.
Standardized reporting enables comparison of climate finance performance across countries and organizations, reducing ambiguity. Clear, uniform reporting requirements make it easier to identify discrepancies or misuse of funds and provides enhanced accountability.
Evidence-based decision making provides reliable data for policymakers, investors, and civil society to assess project impacts and allocate resources effectively. Clear protocols on how to disclose financial flows and climate-related risks ensure transparency in investment decisions and facilitates independent verification of reports, strengthening credibility and trust.
Building trust
When combined, these tools offer a powerful transparency ecosystem where blockchain ensures data integrity, while standardized reporting provides the framework for collecting and interpreting this data.
By leveraging blockchain and standardized reporting, developing nations can build trust with international investors and donors, demonstrate effective use of climate funds, and attract further investment for critical adaptation and mitigation projects.
This ecosystem will be enhanced with public beneficial ownership registries as they provide clear information about who ultimately owns and/or controls the companies involved in climate projects, both participants and beneficiaries.
They ensure funds are not funneled to hidden interests or shell companies because they reveal hidden ownership structures thereby preventing companies with poor environmental records from establishing new entities to access financing under a different name.
They can also reveal potential conflicts between project developers, government officials, and funding institutions, reducing the risk of favouritism. For investors and funding agencies, they can use ownership data to assess the credibility and risk associated with potential climate projects and ensure that recipients meet anti-corruption and ethical standards before receiving funds.
Taken together, these tools can provide a transformative role in ensuring climate finance is transparent, traceable, and impactful. Trust and integrity among stakeholders are essential in attracting private money to developing countries. By integrating technology, clear standards, and robust governance, the world can move closer to ensuring climate funds deliver real, verifiable impact.
