June 1, 2024

Corporate Power Must be Curbed to Ensure a People-Centered, Just Energy Transition - and Philanthropy can Help

By Jana Morgan, FORGE and Rachna Saxena, Dalberg Dalberg Advisors, originally published by Dalberg

Corporate power in the climate ecosystem is on the rise. In just one example, the record number of fossil fuel lobbyists that attended COP28 last year and the resulting weak statements on the need to transition away from fossil fuels underscore how corporate power can stall meaningful progress on climate change and building sustainable, inclusive, and thriving economies.  

In response to corporate efforts to stall concrete action, governments are seeking to engage willing companies as partners, leveraging government resources to influence corporate behavior and involve them in a just, green transition.  Governments are providing targeted financial investments and technical assistance to corporations in key sectors. India, Colombia, the U.S., the E.U., and Brazil have all announced major green subsidies or public investments in the green transition in the last five years. From 2020 to 2023, governments have allocated $1.34 trillion towards clean energy investment.  As a result of these efforts, corporations are increasing their own investments in these key sectors and supporting employment growth.  
  

The challenge is that governments need support in achieving their new vision for engagement with private actors. Many governments are currently negotiating contracts with energy and mining companies that will be critical to the supply of clean energy and transition minerals in the decades to come. However, these contracts can (i) have harmful clauses that limit governments’ ability to enact climate policies, (ii) allow corporations an outsize share of profits, (iii) enable overutilization or pollution of natural resources, and (iv) facilitate labor exploitation and sometimes allow impunity for human rights violations. For example, a recent review of state contracts with petroleum corporations found that more than half of them may exempt corporations from new environmental laws as part of their stabilization or arbitration clauses. The Business & Human Rights Resource Centre’s Transition Minerals Tracker has identified 510 allegations of human rights abuse in mining projects between 2010 and 2022. In practice, the wealth from the extraction of natural resources, such as precious minerals, timber, oil, coal and diamonds, has failed to generate equivalent wealth for local communities or workers in extractive supply chains. In fact, extractive companies have contributed to the displacement of communities, environmental degradation, human rights violations, as well as economic, social and gender inequality.  

Governments need strong transparency and enforcement provisions in their laws and regulations to prevent illicit capital flows, bribery, and tax evasion, as well as strong environmental protections and human and labor rights safeguards to ensure this next generation of green industrial policies benefits both people and planet. Ensuring a successful, equitable and inclusive transition to a new energy economy will also require collaborating with civil society, including local communities, trade unions, women, and indigenous groups, in policy design and monitoring and evaluation. The alternative, as we have seen with other public programs, is that government investments may fall prey to corruption and misuse.  

The Open Society Foundations and Dalberg partnered to engage a group of senior stakeholders in the climate and energy ecosystems to prioritize opportunities for philanthropy to support government efforts. Two roles emerged as most critical. 

Role 1: Demand transparency and accountability mechanisms in green public investment programs globally and increase support for independent civil society actors working to ensure that these programs are just and equitable.   

Philanthropy can draw from the past 20+ years of work to increase accountability in the extractives industry to advance similar objectives in the clean energy economy. The formula for just, rights-respecting governance frameworks around transition minerals and renewables is much the same as for extractives: company disclosure on ownership, revenues, and payments; transparent contracting; mechanisms for community and worker organization engagement; and attention to issues relating to workers’ rights, taxes, subsidies and anti-corruption safeguards. Specifically, philanthropy can support advocacy for greater transparency, support the design and implementation of platforms that allow for public visibility into investment decisions and monitor whether the rights of affected workers and communities are respected, and push for legal changes to the rules regarding public spending. It is particularly important to support independent civil society given its limited funding but significant influence. For example, civil society actors in Mexico worked with the government to implement EITI’s transparency reforms, which helped accelerate the implementation of large-scale energy and mining programs by building trust in the process.

Role 2: Support Global South governments to negotiate fair investment treaties and contracts for transition minerals and renewables development. 

Philanthropy can support the ecosystem of ‘public defenders’ for Global South governments and support longer term domestic legal frameworks to support governments in avoiding disadvantageous arbitration provisions and stabilization clauses that exempt companies from the obligation to comply with future climate regulations. For example, in Niger, the African Legal Support Facility (ALSF) supported the government in negotiating two mining concessions for the Niger Mining projects, leading to a potential increase of $220-330 million in additional revenues for the host country. 

Unfortunately, philanthropic support for these critical efforts is limited today. The Open Society Foundations engaged the Trust, Accountability and Inclusion Collaborative to undertake a landscape analysis of funding trends with respect to corporate capture work.  The broad finding was that philanthropic funding related to preventing corporate capture and protecting against undue corporate influence in government negotiations was limited overall. Greater amounts of funding are going towards efforts that facilitate private-sector development.  Similarly, ClimateWorks’ analysis of funding trends in 2023 suggests that while funding for corporate accountability has increased in recent years, funding for other climate efforts vastly overshadows that for more justice-oriented work. For instance, funding for corporate accountability efforts represented just 4% of foundation giving to climate mitigation efforts in 2022.  

We call on the global philanthropic community to reverse this trend and step into the critical roles outlined above to support governments and civil society and ensure the clean energy transition is just, inclusive, and equitable.

By Jana Morgan, FORGE and Rachna Saxena, Dalberg (with support from Michael Tsan, Fabiola Salman, Adam Bradlow, Mariana Castro, and Sophie Gardiner)