Why the switch to clean energy means shining a light on beneficial owners

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The Russian invasion of Ukraine has prompted sanctions targeting Russian interests which have underscored how secrecy over company ownership undermines governments’ ability to enforce them, and has enabled corruption and money laundering. As many investors seek to address near term pressures and pivot to the renewable energy sector, a new joint report from the Extractive Industries Transparency Initiative (EITI) and Open Ownership makes the case that beneficial ownership transparency (BOT) must be a key accountability tool to enable a sustainable energy transition.

The energy transition will require profound transformation from countries that produce the raw materials on which energy systems rely. As demand grows for clean energy technologies, they will likely face economic, political and social challenges similar to those that have been observed in extractive and energy industries in the past. This has led some to warn of the possible emergence of what has been labeled a ‘green resource curse’.

Employing a broad base of governance strategies is necessary to mitigate such risks, our research argues that additional effort and resourcing is needed from governments, companies, and civil society to build accountability and transparency into the clean energy sector. In particular, we highlight beneficial ownership transparency (BOT) as a key policy instrument for shoring up transparency and accountability mechanisms along clean energy value chains.

Much work remains to be done to fully understand the relationship between BOT and the energy transition, but our analysis of the evidence to date identifies several key ways in which BOT is a promising and concrete accountability tool for clean energy industries. BOT can help by:
  1. Mitigating risks and pitfalls for critical minerals producers

Developing and emerging economies are likely sources of a significant proportion of critical minerals for green energy technologies, such as lithium for battery storage of renewable energy. Demand for these minerals is expected to grow rapidly, and experience shows that mining booms can increase the incentives for corruption, rent-seeking behaviour and economic mismanagement. Having robust beneficial ownership reporting requirements and central, public registers in both producer and consumer countries will offer better visibility of transnational company structures and supply chains, and therefore information about which individuals are investing in and benefiting from these resources’ development. The use of an open data standard can ensure national datasets are well-structured, interoperable, and understood by domestic and international investigators, as well as civil society, researchers and journalists.

2. Strengthening transparency along clean energy value chains

The energy transition will lead to an increase in the deployment of clean energy projects. Countries with critical minerals may be eager to develop midstream industries, such as minerals processing and the manufacturing of battery plants, and could lower standards (e.g. in due diligence) to attract investors. Large capital flows into such industries may attract unscrupulous actors who can influence licensing deals, such as the award of wind and solar licenses, to benefit vested interests. The risk is greatest for new producer countries. BOT can help to mitigate the risk of politically exposed people gaining undue access to business opportunities in clean energy industries, and can also help detect the use of shell companies for illicit purposes.

3. Uncovering power purchasing agreements

The energy transition must include the expansion of electricity access. Power Purchase Agreements (PPAs) are decisive for effective power distribution arrangements, and poor terms can lead to damaging outcomes. They often include public sector actors and investments, yet their conditions are not always disclosed. Some experts have called for beneficial ownership information to be included in PPA disclosures because it is “essential for utilities/regulators to maintain their oversight ability and manage issues such as taxation or tort liability.” Beneficial ownership information serves a similar function for PPAs as it does in procurement: mitigating against conflicts of interest, increasing value for money for taxpayers, fostering competition, and increasing accountability to the public.

4. Monitoring private finance in the transition

Whilst pressures from the Russia-Ukraine conflict and emerging energy crisis have created a more challenging context, vast financial resources have been committed to the energy transition. BOT can make private financing more transparent and accountable to the public good by supporting commitments to economic, social, and governance (ESG) standards. New research from Open Ownership shows ESG standards and frameworks can reinforce incentives to disclose and use BO data. BO disclosure requirements offer a clear key performance indicator that could be incorporated into ESG frameworks being developed to support the energy transition. There are also rising public expectations and industry standards for companies to be held accountable for their emissions. Beneficial ownership transparency can help with monitoring and due diligence of company activities.

5. Supporting a just transition

Finally, governance failures such as corruption and tax evasion undermine governments’ ability to ensure that the benefits of the transition will be fairly distributed. A lack of transparency risks the diversion of the benefits of the transition away from communities, and towards politically exposed persons and bad actors due to the interference of vested interests. For these reasons, measures to ensure transparency and accountability are a prerequisite to delivering a just transition.

In sum, BOT is a promising and concrete accountability tool for clean energy industries. It will be most effective if it is embedded from the outset and at multiple points in energy value chains. Furthermore, implementation should build on lessons learned from the extractive sector, where BOT is already an established governance reform to help mitigate challenges associated with resource-rich countries.

We recommend that governments, companies and civil society act to achieve meaningful and continuing reform to raise global standards on BOT, as countries lay the groundwork to achieve energy transitions that balance sustainability, economic prosperity, and social equity. For more details on our recommendations, please see the full report: Shining a light on company ownership: the role of beneficial ownership transparency in the energy transition, being launched today (31 March 2022) at a session of the 2022 OECD Global Anti-Corruption & Integrity Forum being hosted by EITI and the Natural Resource Governance Institute.

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Opening Extractives