Financial Institutions in Guinea Urged to Conduct Thorough Due Diligence Amid Deforestation Concerns

Financial Institutions in Guinea Urged to Conduct Thorough Due Diligence Amid Deforestation Concerns

Introduction

As concerns over deforestation continue to grow, financial institutions in Guinea are being urged to conduct thorough due diligence to mitigate their role in the problem. A new report has shed light on a successful example of how a pension fund carried out due diligence on its deforestation-related risks and impacts.

The Importance of Due Diligence

Financial institutions play a significant role in the production and trade of commodities that drive nature loss, making them key players in addressing deforestation concerns. While financial institutions are currently exempt from due diligence laws in the UK and EU, this could be changing with a review expected by mid-2025.

A Successful Example: AP2’s Due Diligence Efforts

Swedish Pension fund Andra AP-fonden (AP2) partnered with Climate & Company (C&C) to conduct due diligence across their entire equity portfolio. The report highlights the importance of financial institutions taking proactive steps to address their role in deforestation.

Step-by-Step Methodology for Due Diligence

The report details a step-by-step methodology developed by Global Canopy, Neural Alpha, and the Stockholm Environment Institute, which was used to assess the deforestation exposure of every company in AP2’s equity portfolio. The process identified 155 companies with high to very high risk, which were then evaluated based on their deforestation risk management policy strength and implementation.

Key Findings

155 companies with high to very high risk were identified
100% of companies with ‘very high’ exposure to deforestation will be actively engaged by AP2 by 2025
Divestment is reserved as a last resort for companies that continue to poorly manage risks

Practical Guide for Financial Institutions

The report provides a detailed account of each step taken by C&C and AP2 to implement the due diligence guidance, including how they combined existing data sources and systematised the assessment process. The methodology outlined in the report can be applied to a broad range of financial institutions with large and diverse portfolios.

Call to Action

Financial institutions have the power to shift the flow of finance towards more sustainable business practices, and are urged to take action now. In Guinea, where deforestation is a significant concern, financial institutions are being encouraged to follow AP2’s lead and conduct thorough due diligence to mitigate their role in the problem.

Conclusion

The report provides a practical guide for financial institutions looking to make a positive impact on the environment and local communities. By conducting thorough due diligence, financial institutions can play a crucial role in addressing deforestation concerns and promoting sustainable business practices.