Practical Information for Financial Institutions

WWF Publication

Natural Capital - Financing Forest Certification in Malaysia

A report from WWF/GFTN highlights key challenges and opportunities involved in financing forest certification in Malaysia. Read more...

Why Responsible Investment Matters

Financial institutions, such as banks, pension funds, insurers, and export credit agencies are all increasingly pressured by civil groups around the world to stop investing in companies/projects that disregard the environment and social justice. In the past decade, banks have been blamed for financing the destruction of millions of hectares of forest. There is an urgent need for financial institutions to adopt and implement responsible investment policy in order to avoid the following risks:

Operational risks
Poor environmental planning can increase the client’s vulnerability to losses due to flooding, pests, fire, disease, etc.
Compliance risks
The client’s profitability may be threatened by fines, loss/suspension of permits, damages claims
Reputation risks
By financing controversial projects, banks are attractive targets for NGO campaigns

Reducing risks
To avoid social and environmental risks, as well as financial risks, investors are encouraged to adopt a responsible investment policy that will effectively screen out potentially risky projects or companies. Various banks have already taken leadership in adopting policies that ensure forest protection and social rights.

Suggested broad objectives for a forest sector investment policy:

Respect national laws and international conventions concerning forest management and conservation
Contribute to responsible management and protection of forests, in particular maintenance and enhancement of High Conservation Value Forests
Ensure adequate and appropriate development and implementation of environmental management systems and environmental plans
Respect the rights of local communities and indigenous peoples who depend on forest ecosystems
Respect human rights, labor codes and standard of workers
Ensure accountability towards stakeholders, transparency and independent auditing practices.

For a detailed guidance, read WWF’s guidelines for responsible forest investment

Initiatives to support Financial institutions

UNEP Finance Initiative
The United Nations Environment Programme Finance Initiative (UNEP FI) is a unique global partnership between UNEP and the private financial sector. UNEP FI works closesly with over 160 financial institutions who are signatories to the UNEP FI Statements, and a range of partners organizations to develop and promote linkages between the environment, sustainability and financial performance. Visit the website here.

Principles for Responsible Investment (PRI)
PRI is an initiative of the UN Secretary-General implemented by UNEP Finance Initiative and the UN Global Compact. The Principles are voluntary and aspirational. They provide a menu of possible actions for incorporating environmental, social and corporate governance (ESG) issues into mainstream investment decision-making and ownership practices. The PRI is open to all institutional investors, investment managers and professional service partners to support. Visit the website here.

The Equator Principles
In June 2003, commercial banks in collaboration with the International Finance Corporation (a member of the World Bank Group) launched the Equator Principles. The Equator principles were one of the first industry wide attempts to encourage environmentally and socially responsible lending. A subsequent updating process took place in 2006 leading to a new revised set of Equator Principles that were released in July 2006. Visit the website here.

The Collevechio Declaration
The declaration is an appeal of over 100 civil society organisations to private financial institutions to acknowledge their responsibility in fostering social and environmental sustainability. The declaration was drafted by members of BankTrack, a network of civil society organisations whose goals (among them) is to connect financiers with environmental, social and human rights NGOs engaged in project and policy monitoring. View the declaration.

CERES 10 environmental principles
CERES was formed in 1989 as a groundbreaking partnership between leading environmental groups and institutional investors. This resulted in the creation of the Ceres Principles, a pioneering 10-point code of corporate environmental conduct that has led to the widespread adoption of environmental principles by companies worldwide . Visit the website here.

Examples of bank policies on forestry and greenfield sectors

Environmental Policies and Guidelines

Screening Procedures

IFC - Procedure For Environmental and Social Review of Projects

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