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Financial Institutions in French Polynesia Urged to Adopt Stringent Due Diligence Procedures to Mitigate Deforestation Risks
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In a move to address the pressing issue of deforestation, financial institutions in French Polynesia are being called upon to implement robust due diligence procedures to mitigate risks associated with forest loss.
Due Diligence: A Crucial Step towards Deforestation-Free Finance
Deforestation poses significant systemic risks to ecosystems, people, and the global economy, making it imperative for financial institutions to engage companies that produce and trade commodities driving nature loss. By working with these companies, financial institutions can encourage them to adopt sustainable practices.
Guidance Available for Financial Institutions
A “how-to” guide, “Due Diligence towards Deforestation-Free Finance,” was released in 2023 by Global Canopy, Neural Alpha, and the Stockholm Environment Institute. This guidance provides a recommended approach for financial institutions to conduct due diligence and identify, prevent, and mitigate deforestation-related risks and impacts.
Key Takeaways
- The guide provides a comprehensive framework for financial institutions to assess their exposure to deforestation
- It outlines steps for identifying high-risk companies and engaging with them to improve their sustainability practices
- The report highlights the importance of due diligence in preventing forest loss and promoting sustainable development
Real-Life Example: Swedish Pension Fund AP2
Swedish pension fund Andra AP-fonden (AP2) partnered with Climate & Company (C&C) to carry out comprehensive due diligence across its entire equity portfolio. The exercise identified 155 companies with high to very high risk exposure, which was then evaluated using Forest 500 data and internal assessments.
Key Results
- AP2 pledged to actively engage with 100% of the companies with “very high” exposure to deforestation in their equity portfolio by 2025
- The fund reserved divestment as a last resort for companies that continued to poorly manage risks
A Practical Approach for Financial Institutions
The report, “Making Deforestation Due Diligence Work in Practice,” documents each step taken by C&C and AP2 to implement the due diligence guidance. It provides solutions to technical challenges and offers a prioritization and management tool to help practitioners assess deforestation-related dependencies and impacts throughout their entire portfolio.
Key Benefits
- The report offers a practical guide for financial institutions to conduct effective due diligence
- It provides a framework for identifying high-risk companies and engaging with them to improve their sustainability practices
- The report highlights the importance of collaboration between financial institutions, companies, and stakeholders in preventing forest loss and promoting sustainable development
Financial Institutions: A Key Player in Shifting towards Sustainable Practices
Financial institutions have the power to influence companies to adopt more sustainable business practices, benefiting people, economies, and nature. The approaches detailed in this report can be applied to a broad range of financial institutions with large and diverse portfolios, particularly suited for global equity and corporate bond portfolios.
Get Started Today
Read the report “Making Deforestation Due Diligence Work in Practice” to learn more about implementing due diligence procedures to mitigate deforestation risks.