Due diligence towards Deforestation-Free Finance
Our new how-to guide sets out a recommended approach for financial institutions to conduct due diligence to identify, prevent and mitigate the risks and impacts of deforestation, conversion and associated human rights abuses.
Deforestation poses a systemic risk to ecosystems, people and the global economy – and the finance sector is key to the production and trade of commodities that drive nature loss.
Developed in partnership between Global Canopy, Neural Alpha and the Stockholm Environment Institute (SEI), this is the latest addition to our suite of Deforestation-Free Finance guidance.
This guidance helps financial institutions:
- be aware of physical and transition risks posed by deforestation and their essential role in preventing and mitigating these risks
- be aware of incoming deforestation regulations and their potential implications for financial institutions
- identify and assess risk of exposure to deforestation, conversion and associated human rights abuses in their portfolios
- prevent and mitigate risks; monitor and remediate adverse impacts
- track, report and disclose for accountability.
The guidance is available in English and Brazilian Portuguese. It will soon be available in Indonesian Bahasa.
Why institutions need to use this guidance now
The finance sector can be exposed to deforestation risk through their business relationships with clients or holdings that are directly involved in the production, processing, or procurement of forest-risk commodities, or finance these activities and commodities.
Some financial institutions have made commitments to halt deforestation, but we still need to see a significant shift from the sector. Incoming deforestation regulations will also bring greater regulatory risks.
In December 2022, the European Union agreed to implement regulations on deforestation-free products (EUDR). The EUDR mandates a review within two years (likely by mid-2025) on the role of financial institutions in preventing financial flows contributing directly or indirectly to deforestation and forest degradation.
This guidance shows financial institutions how to implement a due diligence processes to identify, prevent and mitigate the risks of deforestation, conversion and associated human rights abuse in financial portfolios.
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