Criteria for Financial Investors to Consider in Due Diligence

Financial institutions will benefit from adopting responsible forest lending policies.

Financial lenders, equity investors, investment fund managers with investments in forest and forest related industries will find on this page the criteria that have to be factored into the due diligence process of investments.
 
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Sustainable Forest Management.
© WWF Guianas
Environmental standards are a cost of doing business. However, they can generate competitive advantages, particularly reputation benefits by having projects meet more stringent criteria.

Due diligence: Assessing Environment and Social Impact

The 6 principles below (legality, forest management, labour, community, governance & environmental, social and resource management) should be considered in investments that impact the forest.

These principles represent the minimum criteria when considering investments in forest and forest-related industries

Legality

Obey the law
A basic requirement is legal compliance with local and national laws and international regulations, conventions and agreements.

These include the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), UNESCO World Heritage Sites, and Convention on Biological Diversity (CBD), logging moratoria, declarations of protected areas, forestry laws, and environmental protection legislation.

Forest Management

Zero conversion of High Conservation Value (HCV) areas
By concentrating on the most critical environmental and social values, the HCV framework provides a mechanism for ensuring that donors and investors fulfill their own environmental and social policies.

The HCV process enables companies to develop appropriate conservation management of HCV areas. HCV assessments is a valuable tool for plantation companies in the pulp and paper and palm oil sector to determine “no go” areas that have to be set aside for conservation.

Labour

Respect workers’ rights and welfare
At a minimum, human resource policies and practices must comply with local labour laws and be in line with the International Labour Organisation (ILO)’s core convention, codes and standards.

Clients need to ensure that responsible labour policies and practices are clearly stated and transparent and that an effective staff grievance mechanism is in place.

A written human resources policy should clearly state all labour practices and agreements and criteria should factor issues relating to child and forced labour, health and safety concerns, gender and racial discrimination, and fair compensation.

Community

Recognize the rights of local and indigenous peoples
Clients must respect and guarantee the legal and customary rights of local and indigenous communities to own, use and manage their lands, territories and resources according to the principle of free, prior and informed consent.

The guiding principles follow the UN Universal Declaration of Human Rights and the principle of free, prior and informed consent, and the Convention on Biological Diversity (CBD) principle on fair and equitable use of forest resources by these communities.

Other considerations include the presence of procedures for regular local stakeholder consultation and participation in project decision-making affecting their livelihoods, and an appropriate grievance mechanism.

Governance

Reporting for transparency and accountability
Clients must provide adequate corporate responsibility/sustainability reporting to help investors identify the company’s commitment to sustainability and corporate social responsibility.

This can be done in accordance with the Global Reporting Initiative (GRI)'s Sustainability Reporting Guidelines. Clients should be encouraged towards independent monitoring of their performance and where possible, involve local stakeholders in the development of standards and performance monitoring.

Environment, social and resource management

Addressing impacts
All new investments in forest and forest related industries are required to undertake an Environmental and Social Impact Assessment (ESIA) with adequate stakeholder consultation factoring ecological, social and cultural concerns.

Following the ESIAs, the client should have in place adequate management and monitoring plans to address issues identified in the assessments that require improvements or corrective actions.

These can include actions relating to the reduction of air and water pollution, prevention of forest fires, soil erosion, pest invasion, and biodiversity loss.

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This resource is made possible by the generous support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of WWF and do not necessarily reflect the views of USAID or the United States Government. This resource is also funded through SIDA.

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