IIGCC and the Finance Sector Deforestation Action initiative (FSDA) have launched the first-ever investor expectations for banks on eliminating commodity-driven deforestation, conversion and associated human rights abuses in their lending and investment practices. The paper was led by co-authors from Aviva and Boston Common.
The FSDA Expectations for Commercial and Investment Banks is based on the principles that deforestation is a climate issue accounting for approximately 11% of carbon emissions, and poses a financial risk to investors and banks at both top-down systemic and bottom-up individual company levels.
As shareholders in banks, investors have a fiduciary duty to ensure banks consider and manage the financial risks associated with deforestation. The expectations were developed to support investor engagement with banks on deforestation.
Banks that fail to address deforestation are exposed to financial risk through various channels, including physical risk, transition risk and systemic risk. But they are also uniquely positioned to tackle deforestation through engagement across value chains, their financing decisions and encouraging best practice and transparency among clients.
Find out more on IIGCC's work on banks through our Banks Engagement Resource Initiative.
The guidance details a set of five key engagement expectations built on the FSDA's investor expectations of companies:
- Risk Assessment
- Commitment and governance
- Expectations for clients
- Monitoring and compliance
- Disclosure
These expectations are underpinned by 19 metrics to support investor engagement with banks on deforestation.
