Phase 2

Setting an effective policy and managing risk

Following an initial risk assessment, you can begin to manage your financial institution’s deforestation, conversion, and associated human rights risk. There are two critical elements to this process – setting a strong policy, and conducting an in-depth assessment of exposure to deforestation, conversion, and associated human rights risk. There is no recommended order for these steps; the detailed risk assessment can inform the development of the deforestation, conversion, and associated human rights policy and vice versa.

Recommendations for timings to eliminate commodity-driven deforestation, conversion, and associated human rights abuses by 2025:

We recommend that Phase 2 should be completed by the end of 2022 or within 15 months of committing to the Roadmap.

At the end of Phase 2, you will have:

  • quantified your deforestation, conversion, and associated human rights risk and categorised your clients/holdings into high-, medium-, and low-risk based on both their exposure to deforestation risk and their measures to manage that risk
  • identified key priority clients/holdings for engagement
  • set a clear, strong policy on deforestation, conversion and human rights which cover all of your financing activities.

The in-depth risk assessment builds directly from the profile of high-risk clients/holdings you developed  in Phase 1, where you identified which clients/holdings were likely to be high-risk. This Step sets out how to quantify the actual exposure of clients/holdings to deforestation, conversion, and associated human rights risks, and how to assess their performance on these issues.

You can begin this Step by prioritising those identified as likely high-risk in Phase 1, and from here, you can identify which clients/holdings you have the greatest exposure to and which to prioritise for engagement in Phase 3.

Your initial assessment of deforestation, conversion, and associated human rights risk may have been in-depth due to the size of your portfolios. If that is the case for your organisation, you can skip this recommended step.

Recommended action 1: Conduct in-depth assessment of deforestation, conversion, and associated human rights risk and performance

Completing an in-depth assessment of deforestation, conversion, and associated human rights risk, and efforts to mitigate and address this risk, will help you to identify which of your clients/holdings have the most progress to make. This tells you which clients/holdings thus require more urgent engagement in order to become compliant with your deforestation, conversion, and associated human rights policy (Phase 3). This in-depth risk assessment should directly build upon the initial risk assessment conducted in Phase 1.

Building on the initial risk assessment conducted in Phase 1, this due diligence can then be used to identify which of your clients/holdings your policy on will need to apply to, and which are likely to be non-compliant with your policy through indicators such as:

Exposure to deforestation

  • What volumes and proportion of total volume of each forest-risk commodity produced, sourced, or financed by the client/holding are assessed and/or verified as deforestation- and conversion-free?
    • What methods and data sources are used to verify deforestation, conversion and human rights abuse-free status and assess for deforestation, conversion and human rights abuses? 

For non-verified deforestation-and conversion-free volumes:

  • For companies that own or manage land for forest-risk commodity production and processing or that finance these processes: how many hectares of land are used for forest-risk commodity production and processing which are known to be non-compliant with deforestation and conversion-free standards, and also identify the area used where deforestation/conversion risks are unknown. Identify which countries and sub-national jurisdictions these are located. 
    • How many hectares of forest or natural ecosystems have been converted within the past year, five years and/or subsequent to the company’s cut-off date (if specified), as relevant to region and context, disaggregated by legality of conversion, biome, vegetation type, and/or HCV status?
    •  How many hectares of land have not been assessed for deforestation or conversion?
  • For companies that source/buy or finance forest-risk commodities: 
    • What is the volume, and proportion of total, of each forest-risk commodity that has not been verified deforestation and conversion-free, but can be traced to the point of production?
    • How many hectares of deforestation and of conversion occurred on production units from which the company sources in their operations, supply chains, or financed projects within the past year, five years and/or subsequent to their cut-off date (if specified)? What proportion is legal and illegal conversion? What is the breakdown by location or biome?
    • What volumes and proportion of total volumes of each forest-risk commodity that have not been verified deforestation and conversion-free is traceable to sourcing areas (e.g. sub-national jurisdictions) with known deforestation, conversion and human rights risks?
    • How many hectares of deforestation and of conversion risk can be attributed to sourcing areas and specific forest-risk commodities in their  operations, supply chains, or financed projects within the past year, five years and/or subsequent to their cut-off date (if specified)
    • What volumes and proportion of the total volume are of an unknown origin?
    • What methods and data sources are used to verify deforestation, conversion and human rights abuse-free status and assess for deforestation, conversion and human rights abuses?

Risk management: policies

  • Does the client/holding have comprehensive deforestation, conversion and human rights commitments/policies in place for all high forest-risk commodities?
    • Do the policies cover the following: zero-gross deforestation and conversion of all natural ecosystems, a clear and quantifiable cut-off date from when deforestation and conversion would be seen as non-compliant with the commitment/policy, a clear and quantifiable target date for the full implementation of the commitment, and cover all suppliers (direct and indirect), operations and sourcing areas?
      • The Accountability Framework recommends a target date of no later than 2025 to eliminate deforestation and conversion from supply chains, in order to reflect the urgency of acting on biodiversity and climate crises. This recommendation also aligns with standards set by several other key initiatives, including SBTi-FLAG and Race to Zero.
    • Do the human rights policies cover the following: testing for Free, Prior, and Informed Consent (FPIC) of Indigenous peoples and local communities (IPLCs), respect the customary and legal land rights of IPLCs, a zero tolerance approach for threats and attacks against Forest, Land and Human Rights Defender, and the labour rights of those working within relevant supply chain, industries, and projects?

Risk management: monitoring systems for deforestation and conversion

  • Does the company/investment have/publish details of effective compliance monitoring systems in place for their supply chains/financing activities for deforestation, conversion and associated human rights?
  • Does the company/investment have/publish details of its own grievance mechanisms or complaints system in place to identify and remedy adverse social impacts linked to their operations and/or supply chain that is open to all stakeholders and report details of complaints? 
    • How many grievances have been raised against the company related to deforestation, conversion, and human rights abuses and what is the status or resolution of these grievances (including dates and status)?

Risk management: monitoring systems for associated human rights abuses

  • Does the client/holding have/publish details of the process for addressing land conflicts in its own operations and/or supply chain?
    • Do they report how many and the names of all Indigenous and local communities whose territories (both legally recognised and customary) that in any way overlap with direct or supply chain operations or would be directly impacted by them?
    • Does the client/holding report how many hectares and what proportion of the total company/investment operations/supply chain operations’ land bank overlaps with Indigenous and local communities’ territories?
  • Does the client/holding monitor the compliance of production or primary processing operations that it owns, manages or otherwise controls or its supply chains with its commitment on Free, Prior and Informed Consent?
    • Does the client/holding report how many land developments/site acquisitions (either by themselves or their suppliers) used FPIC to secure consent from affected Indigenous and local communities out of the total number of land developments or site acquisitions? 
  • Does the client/holding monitor the compliance of production or primary processing operations that it owns, manages or otherwise controls or its supply chains with its commitment on zero tolerance for threats and violence against Forest, Land and Human Rights Defenders?
    • Does the client/holding report any externally verified information around providing employee training on the zero tolerance commitment?
    • Does the client/holding disclose the number of forest, land and human rights defenders threatened or attacked that are linked to land owned, managed, or otherwise controlled by the company, or its supply chain?
  • Does the client/holding monitor the compliance of production or primary processing operations that it owns, manages or otherwise controls or the compliance of its supply chains with its commitment on labour rights?
    • Does the client/holding report any externally verified information around providing employee training on workers’ rights or does it report setting up dedicated teams or committees responsible for implementing processes to identify and mitigate any negative impacts on workers’ rights?

Data for this assessment can be drawn from: 

  • Direct reporting on progress towards the policy (on deforestation, conversion, and human rights) from the client/holding directly to your organisation
    • The preference should be for this data to also have third-party (independent), verification of reporting, including on-the-ground measures such as verification of Free, Prior and Informed Consent being freely given for operations/projects and the amount of deforestation and of conversion which occurred in their operations, supply chains, or financed projects within the past year, five years and/or subsequent to their cut-off date (if specified)
    • This should also include data on their suppliers, including smallholders, and any financed projects/operations, not just their own operations.
  • Public reporting through recognised mechanisms including CDP Forests, CSR reporting, GRI reports, TCFD, TNFD or other comprehensive reporting approaches 
  • Certification bodies with robust deforestation, conversion, and human rights standards, e.g. RSPO, FSC, reports of physical/identity preserved commodities
  • Internal or public reports by civil society organisations and rights-holders, including through a grievance mechanism or direct consultation
  • Third party data providers on deforestation policies, reporting and exposure assessment tools such as Forest 500, Trase, ZSL SPOTT, and other ESG data providers
  • Independent human rights impacts assessments, which provide third party verification of whether clients/holdings are implementing their commitments on the ground
  • Investigations and media stories linking the client/holding to deforestation and human rights abuses
  • Publicly available information reported through the clients’/holdings’ grievance mechanisms
  • Satellite data and/or tools on deforestation and conversion such as Global Forest Watch Pro, Starling, Maphubs palm oil.io can be used to verify whether identified sourcing regions are free from deforestation and conversion
  • Government and NGO databases for compliance with laws and legislation

A combination of these sources should be used to ensure a complete picture of performance is achieved.

This can be done effectively by sending a survey to clients/holdings for which data is not available to ask them to provide information directly to your organisation. If your organisation has the capacity to do this, a standardised list of questions can be used for all relevant clients/holdings, asking targeted questions including:

  • Information on any outstanding grievances concerning deforestation, conversion, or human rights abuse that pertain to the client/holding, and the details of these grievances
  • What systems they have in place to address risks of deforestation, conversion, and associated human rights risk, e.g. policies, traceability systems, supplier monitoring
  • How many hectares of deforestation and of conversion of other natural ecosystems occurred in their operations, supply chains, or financed projects within the past year, five years and/or subsequent to their cut-off date (if specified).

As part of your data collection, you can also ask clients/holdings to disclose the actions they are taking to help achieve a nature- and people- positive future. Positive actions are not a replacement for preventing deforestation, conversion, and associated human rights abuse. They can be used by your organisation to assess the transition risk of the clients/holdings in your portfolio, but only as supplementary to their actions to mitigate deforestation, conversion, and associated human rights abuses. It can include information such as:

  • The proportion of revenue coming from or financing sustainable agriculture projects
  • Investments or participation in ecosystem conservation projects
  • Investments or participation in projects to support Indigenous peoples and local communities

Using the data collected in the processes above, identify which of your clients/holdings have the highest exposure to deforestation, conversion and human rights risk. At the same time, identify those that are taking too little action to mitigate that risk. These categorisations can then be used to inform which clients/holdings are priorities for engagement in Phase 3 of this Roadmap.

The risk posed by clients/holdings can be determined by evaluating their exposure to deforestation, conversion and human rights risk (their potential risk) and how they manage their exposure (how they limit the risk).

This Roadmap provides suggested metrics, and associated tools and datasets, which can be used to determine whether a client/holding is high-risk based on their exposure to deforestation risk and their mitigation activities.

More information on how to categorise clients/holdings can be found in the appendix (below).

Once you have identified the risk profile of clients/holdings, you can then identify which receive the most finance from your financial institution. This will enable you to ensure that your future engagement is targeted at clients/holdings where your financial institution has the most leverage, and can have the greatest influence in driving progress towards eliminating deforestation, conversion, and associated human rights abuses from your portfolio.

Country-level data on commodity trade, deforestation, conversion, biodiversity and human rights abuses
These datasets and tools can be used to inform your identification of high-risk countries for different forest-risk commodities, industries, and sectors. This knowledge can shape and inform your deforestation policy, ensuring that it covers the key regions and countries for your specific exposure to deforestation, conversion, and associated human rights abuse risks.

  • UN COMTRADE provides data on the trade value and volume of commodities, and all associated derivatives, from all countries
  • MapBiomas provides historical data on the land use cover in Brazil, allowing greater visibility of which areas/regions are most at risk of deforestation
  • Verite Commodities Atlas provides country level data on the risk of child and forced labour in commodity supply chains
  • IBAT (Integrated Biodiversity Assessment Tool) holds three key datasets – IUCN Red list of Threatened Species (the STAR layer is of particular relevance to this Guide), the World Database on Protected Areas, and the World Database of Key Biodiversity Areas. This can be used to identify high-risk regions
  • Prindex provides country-based data on the perceptions of tenure security, as well as at a local level

Company risk exposure and performance profiles
These datasets and tools can be used to identify and understand company/investment exposure to forest-risk commodities, sectors, and industries, and to understand the extent and effectiveness of their action on deforestation, conversion, and associated human rights abuses.

  • CDP Forests assesses companies on their progress towards removing commodity-driven deforestation and forest degradation from their operations and supply chains, based on their CDP disclosures. This provides information on the volumes of forest-risk commodities they source, as well as their actions and processes to address deforestation in their supply chains. Companies are given a grade which can be used to understand their performance on deforestation, with A being the highest score.
  • Forests and Finance assesses the financing of 300 companies in forest-risk commodity supply chains, and evaluates the policies of financial institutions involved. This can be used to understand how financial institutions in your portfolios are linked to deforestation risk, and to evaluate their performance.
  • Global Canopy’s Forest 500 project identifies the 350 companies and 150 financial institutions with the greatest exposure to tropical deforestation risk through their production, processing, procurement, and financing of the six highest-risk forest commodities. The open-access dataset also includes data on volumes of commodities used, as well as a total score for each company and financial institution for their performance on deforestation and associated human rights abuses.
  • Global Forest Watch Pro uses geospatial data to monitor companies and banks in forest-risk commodity supply chains and can be used to assess the performance of high-risk upstream holdings on the implementation of their commitments on deforestation.
  • Trase maps forest-risk supply chains linking consumer countries, and traders, with places of production, allowing pension funds to see which of their holdings are exposed to high-risk regions and commodities, through traders in forest-risk commodity supply chains.
  • ZSL SPOTT assesses  palm oil, timber, paper and rubber producers and processors on the strength of their ESG policies, and publishes the full assessment online, enabling you to identify clients’/holdings’ exposure to forest-risk commodities and to understand their performance on associated issues based on a numerical score and the details of their assessments.
  • ENCORE maps different economic sectors’ impacts and dependencies on nature, and can be used to identify and assess nature-related risks at a sector and sub-sector level.
  • Forest Stewardship Council (FSC) has a database of public FSC certificates showing the volumes of timber and pulp and paper used by clients/holdings, including the volume which is verified as compliant with FSC standards (equivalent to zero-gross deforestation).
  • Land-use Finance Tool can be used to identify which finance flows are deforestation-free or in line with any pre-existing climate commitments, which can be used to understand the exposure and performance of financial institutions which are in your portfolios.
  • RepRisk provides data and metrics on the reputational risks posed by clients/holdings, which can be used to understand their performance on deforestation and associated human rights’ abuse risk by looking at any flags against the company/investment.
  • Roundtable of Sustainable Palm Oil (RSPO) ACOPs provides data on the volume of palm oil and derivatives produced, processed or procured by RSPO member companies including the amount verified compliant with their standards (equivalent to zero-gross deforestation).
  • S&P Global provides relevant ESG ratings for companies, which may be used to identify their performance on some of the key issues around deforestation, conversion, and associated human rights abuses.
  • Supply Change assesses over 700 companies on their deforestation policies for commodities including palm, cocoa, and soy, and provides a score for each company based on their performance on key indicators, providing details of their assessments.
  • Trase Finance links the trade in commodities to investors and lenders worldwide. It enables financial institutions to identify the ultimate owners of companies through high-risk supply chains, as well as providing information on the exposure of those companies to deforestation-risk.
  • WWF Scorecards on palm, soy, timber provide assessments of the key companies operating in different supply chain segments, enabling you to understand the performance and exposure of key companies operating in these supply chains on deforestation, conversion and associated human rights abuses.
  • Business & Human Rights Resource Centre stores news and allegations relating to the human rights impact of over 20,000 companies. Depending on the availability of data, this ranges from a handful of articles to over a decade of news stories, civil society reports and company disclosure.

Geospatial data on production, deforestation and conversion
These geo-spatial datasets and tools provide detailed geographically accurate data on deforestation, conversion, and associated human rights abuses on the ground, including linking to key commodities and regions, and for some also companies and financial institutions. 

  • Nusantara Atlas provides maps of concessions and mills for wood pulp and palm oil in South East Asia, which can help to identify which clients/holdings are operating in high-risk regions.
  • Global Forest Watch Pro uses geospatial data to monitor companies and banks in forest-risk commodity supply chains, and can be used to understand the extent of deforestation in forest-risk commodity supply chains and financing, including those of specific clients/holdings.
  • Land Matrix provides information on large agricultural investments and land acquisitions in almost 100 countries, including information on investors, commodity, and scope which can be used to understand company and financial institution exposure to deforestation risk based on their land acquisitions.
  • Environmental Justice Atlas maps socio-environmental conflicts, and can be used to understand key socio-environmental risks related to forest-risk commodity production in specific regions, as well as identifying conflicts which may be linked to clients/holdings in the portfolio.
  • IBAT (Integrated Biodiversity Assessment Tool) holds three key datasets – IUCN Red list of Threatened Species (the STAR layer is of particular relevance to this Guide), the World Database on Protected Areas, and the World Database of Key Biodiversity Areas. This can be used to identify high-risk regions, which can inform your in-depth assessment of clients/holdings.
  • MapBiomas provides historical data on the land use and land cover in Brazil (land cover including agriculture, pasture and mining, and land use change including deforestation, fires, and regeneration), the Gran Chaco (land cover including agriculture and pasture, and land use change) and Indonesia (land cover including agriculture, pasture, mining and land use change). 
  • WRI RADD allows financial institutions to use radar to detect deforestation (RADD) and can be used to assess the progress and performance of high-risk upstream holdings on deforestation and conversion.
  • Trase has spatial data on commodity and territorial deforestation for sub-national jurisdictions for soy and pasture across South America and palm oil in Indonesia. 
  • Dynamic World provides near-real time 10m resolution global dataset on land cover which includes trees, crops, grass and shrubs, and can be used to identify hotspots for land use change on an ongoing basis.
  • MapHubs provides a deforestation monitoring service for Central Africa (Forest Report) and palm oil (palmoil.io) that tracks grievances, company and ETF deforestation risk.
  • Starling provides bespoke deforestation monitoring allowing companies to monitor deforestation in their supply chains, but can also be used to monitor or assess the performance of particular high-risk clients/holdings on deforestation. These data products use optical and radar satellite data including from NASA Landsat and European Space Agency (ESA) Sentinel 1 and Sentinel 2 satellites and commercial satellites such as Planet and Airbus.

Human rights risk data
The following datasets and tools focus on human rights, including those associated with deforestation and conversion. The data can be used to inform which clients/holdings are likely exposed to high human rights abuse risks and impacts.

  • UN Human Rights Treaty Body database provides details of records and observations from different Human Rights Treaty bodies, which can be filtered by country and Human Rights Treaty body, to identify which countries are particularly at risk of human rights abuses.
  • Land Portal Geoportal provides a map with layers on forest tenure, corruption, forest landscape restoration, and Indigenous and community land rights, which can be used to inform your understanding of high-risk regions and areas where clients/holdings are operating or acquiring land in potential conflict of community land rights.
  • Landmark map of Indigenous and community lands, which can be used to identify where Indigenous peoples hold rights to land, resources, and territory and which regions may be at risk of conflict over land use rights and Free, Prior, and Informed Consent.
  • Verite Commodities Atlas provides country level data on the risk of child and forced labour in commodity supply chains, highlighting which countries are most at risk of these human rights abuses.
  • Environmental Justice Atlas maps socio-environmental conflicts, and can be used to understand key socio-environmental risks related to forest-risk commodity production in specific regions as well as identifying conflicts which may be linked to clients/holdings in the portfolio.
  • Global Witness provide an annual report of the killings of land and environmental defenders over the prior 12 months, which can be used to identify clients/holdings at high risk of being linked to violence and threats against Forest, Land, and Human Rights defenders.

Note that although these datasets and tools are helpful in understanding deforestation, conversion, and associated human rights risks, none provide all of the relevant data and information on their own and are best used in combination. A further list of applicable datasets and tools is available from the Accountability Framework initiative.

Details of suggested metrics that can be used to identify high-, medium-, and low-risk clients/holdings can be found in the appendices.

  • CDP offers guidance on how their different datasets can be integrated into your pre-existing financing processes, including their forest dataset. This includes guidance on how their data can inform stock selection and risk management, but you can also get in touch with CDP directly for specific requests.
  • Page 48 of ‘Deforestation tools assessment and gap analysis: How investor can manage deforestation risk’ from KLP, Storebrand, Rainforest Foundation Norway and Hindsight Consultancy, provides a visual representation of the process for investors to assess deforestation risk for a given company, which is aligned with this Step.
  • The Investor Toolkit on Human Rights from the Investor Alliance for Human Rights provides additional information on how financial institutions can address human rights risks and impacts in their portfolios.
  • WWF’s ‘Assessing portfolio impacts’ provides guidance on how different tools can be used to assess biodiversity and SDG footprints, with a focus on assessing impacts.
  • WWF’s ‘Spatial Finance: Challenges and Opportunities in a Changing World’ report details how spatial data can be used to assess and monitor companies’ assets, which can be used in this Step, for example to support the verification of client/holding reporting.

Suggested metrics to identify high-, medium-, and low-risk clients/holdings can be found in the appendix.

Appendix

The risk posed by clients/holdings can be determined by evaluating their exposure to deforestation risk (their potential risk) and how they manage their exposure (how they limit the risk).

This roadmap provides suggested metrics, and associated tools and datasets, which can be used to determine whether a client/holding is high-risk based on their exposure to deforestation risk and their mitigation activities.

This roadmap does not provide suggested categorisations of high-, medium-, and low-risk based on these proposed metrics, but this may follow in the actor-specific guidance pieces.

Additional metrics that you may wish to use can be found in the Accountability Framework initiative’s Common Methodology.

Potential metrics Useful sources/tools
Identifying exposure to deforestation risk
  • Direct sourcing from high-risk regions (as defined in Stage 1)
  • Indirect sourcing from high-risk regions (as defined in Stage 1)
  • Hectares of deforestation occurred after the cut–off date (if they have one)
  • Dependency on forest-risk commodities
  • Volume of forest-risk commodity and derivatives produced, processed, traded, used, or sold
Identifying steps taken to
manage deforestation risk
  • Deforestation and/or conversion and human rights abuse policies in place for all high-risk commodities
  • Success and progress towards achieving previous policies
  • Proportion of commodity sourcing from high-risk countries/regions (or that which is financed) which can be traced back to the processing facility and the point of production, or to a point where deforestation-free status can be determined
  • Publicly reported stats by the customer/client
  • ESG providers
  • Compliance monitoring and verification systems in place
  • Proportion of commodity sourced/financed monitored for compliance
  • Proportion of commodity sourced/financed verified for compliance
  • NGO lists of controversies, on websites or newsletters
  • Alerts from Indigenous peoples and local community organisations/representatives reported directly or through an intermediary
  • RepRisk
  • Controversy indices from ESG providers

Setting a strong deforestation, conversion, and associated human rights policy includes making comprehensive and clear commitments, specifying requirements for your clients/holdings, and setting a clear threshold to determine when engagement is needed.

This policy should prioritise the six highest forest-risk soft commodities – soy, beef, leather, palm, timber, and pulp and paper. Your organisation can also extend the policy to other high-risk industries and sectors as well.

By setting a strong deforestation, conversion, and associated human rights policy, you are:

  • sending a strong signal internally and externally, and allowing stakeholders to hold you to account
  • setting clear expectations for clients/holdings regarding how risks and impacts should be managed
  • ensuring you have a systemic approach to your financing and associated engagement.

Recommended action 1: Set a strong policy

A strong policy is essential for communicating your organisation’s intentions and for providing the foundation for further action and progress monitoring. This policy should be made publicly available and should commit your organisation to ensuring that all portfolios are free from commodity driven deforestation, conversion, and associated human rights abuses by 2025 (or within four years of beginning the roadmap). The policy should cover all new and existing financing activities, including both direct and indirect financing of all kinds.

Strong policies on deforestation, conversion and associated human rights risk commit financial institutions to achieving financing which is compliant with:

  • zero-gross deforestation of all natural forests (both legal and illegal), as defined by the Accountability Framework initiative:
    • Natural forests include primary forests, second-growth forests, and managed natural forests, but exclude tree plantations.
    • Forests are defined as land spanning more than 0.5 hectares with trees higher than 5 meters and a canopy cover of more than 10 percent, or trees able to reach these thresholds in situ. Forests do not include land that is predominantly under agricultural or other land use.
    • ‘Zero-gross deforestation’ refers to both legal and illegal deforestation.
    • More information on the definition and identification of natural forests and deforestation is provided in the Accountability Framework initiative definitions and Operational Guidance on applying these definitions.
  • zero-gross conversion of all natural ecosystems, as defined by the Accountability Framework initiative
    • Natural ecosystems include wetlands, savannahs, grasslands, and other ecosystems
    • ‘Zero-gross conversion’ refers to both legal and illegal conversion.
    • More information on the definition and identification of natural ecosystems and conversion is provided in the Accountability Framework initiative definitions and Operational Guidance on applying these definitions.
  • the protection of internationally recognised human rights in alignment with the UN Guiding Principles, specifically the following associated human rights:
    • the Free, Prior, and Informed Consent (FPIC) of Indigenous peoples and local communities;
    • the customary rights of Indigenous peoples to lands, resources, and territories;
    • labour rights of workers (including contractors, smallholders, and temporary staff) at the points of production, including from the point of forest clearance to active production, for the highest forest-risk commodities. Where a financial institution or company is engaging with or monitoring a supply chain for deforestation or land rights risks, labour rights should be included in engagement or monitoring efforts in order to eliminate abuses of these rights too
      • As defined by the Accountability Framework Core Principle 2.3 this includes the right to have freedom of association, and to be free from forced labour, child labour, and discrimination in line with the ILO, and to ensure no abusive practices or undue disciplinary procedures, legal and decent working hours, safe and healthy workplaces and living wages and fair benefits;
  • zero tolerance for threats and attacks against environmental and human rights defenders.

Strong deforestation, conversion, and human rights policies address deforestation and conversion regardless of legality. Aside from reducing the regulatory risk posed by illegal deforestation, addressing only illegal deforestation does not remove the systemic, financial or reputational risks deforestation and conversion pose to the finance sector.

In many countries, laws to protect forests and other natural ecosystems are insufficient – meaning large swathes of forest can still be deforested. Additionally, even where laws exist, their enforcement is often inadequate, meaning that illegal deforestation can still be occurring in supply chains or financed projects, and the rights of Indigenous peoples and local communities are not protected. To reduce these risks, financial institutions need to include both illegal and legal deforestation in their deforestation, conversion and associated human rights risk policies.

Requiring and supporting clients/holdings to be free from all forms of deforestation can actually make the implementation of their commitments easier for the clients/holdings. Within forest-risk commodity supply chains, it is easier for clients/holdings to identify if the forest-risk soft commodities they are producing, processing, procuring or financing are driving deforestation at all – it is harder to establish if deforestation is taking place and then go on to define whether it is legally compliant or not. This is due in part to the complexity (and often overlapping or contradictory nature) of legislation at the national, sub-national, and local levels and a lack of availability of legal compliance data.

This statement should:

  • cover all new and existing financing activities, including direct and indirect financing
  • have an ambitious target date to eliminate deforestation, conversion, and associated human rights abuses from your portfolio – ideally by no later than 2025, or at the latest within four years of beginning this Roadmap.

This policy should commit your organisation to only finance clients/holdings and projects that are operating in line with the standards of your policy, and to engage with any non-compliant clients/holdings to bring them into compliance within a set time frame. This policy should explicitly include both existing, potential, and new clients/holdings or projects.

In addition to the core policy elements listed above, this policy should provide sufficient detail and specificity of its scope relative to your organization’s overall portfolio, key requirements for clients/holdings, and key means of operationalizing the policy. These details may be specified in the policy commitment itself or in accompanying public documents.

The policy should be clear, specific, and transparent, in line with the Accountability Framework, including:

  • are fully transparent and publicly available
  • require clients/holdings operating at all stages of supply chains to ensure that the forest-risk commodities they produce, process, procure or finance have not contributed to deforestation or the conversion of natural ecosystems, or associated human rights abuses as defined by the Accountability Framework initiative
  • have clear time-bound target dates.
    • The Accountability Framework recommends a target date of no later than 2025 to eliminate deforestation and conversion from supply chains, in order to reflect the urgency of acting on biodiversity and climate crises. This recommendation also aligns with standards set by several other key initiatives, including SBTi-FLAG and Race to Zero.

In line with best practice, these policies should apply to all clients/holdings in your portfolio, including:

  • Producers (including smallholders)
  • Processors
  • Traders
  • Manufacturers
  • Retailers
  • Financial institutions/financiers
  • Landowners, investors, speculators, or investment funds (whether or not actively engaged in commodity production)
  • All financial services and products provided (for the banking sector this includes lending, underwriting and advisory services)
  • All asset classes (including equities, bond holdings, cash equivalents, commodities, and futures)
  • All financial transactions and deals, regardless of their value
  • All clients/holdings financed, regardless of their size

The policy should identify the primary mechanisms by which your organisation intends to meet its commitments on commodity-linked deforestation, conversion, and associated human rights abuses, which typically include (but are not necessarily limited to):

  • Requirements for clients/holdings
    • Requirements for clients/holdings are a primary way that your organisation will turn its policy into a practical implementation and monitoring mechanism that can be applied across your entire portfolio. Specific recommendations for what to include in these requirements are provided within Recommended action 2, below.
    • These requirements can be included in a separate document if appropriate, but they should be referenced from your organisation’s policy.
  • Engagement
    • Engage with and support your clients/holdings to achieve the standards laid out in your policy and your requirements, and work with them to remediate any past cases of deforestation, conversion, or human rights abuses, as opposed to immediately withdrawing finance from clients/holdings who are not yet compliant with the policy requirements
  • Redirection of financing if needed
    • Include the withdrawal of financing as an available course of action where appropriate and necessary to prevent new environmental or human rights harms or in the event that clients/holdings do not address identified issues within a reasonable time
  • Reporting
    • Commit to publicly report on the progress your organisation is making in implementing your policy and achieving the stated goals and targets
  • Grievance mechanism
    • Provide a publicly accessible grievance mechanism on your organisation’s website, to enable rights-holders and external stakeholders, including NGOs and customers, to report concerns and grievances to your organisation.
    • This can be used to strengthen your risk assessment and due diligence processes further in Phase 3.

Publicly publishing your policy will send a clear statement to your clients/holdings that you are aware of the importance of addressing deforestation, conversion, and associated human rights abuse risk, and enable external stakeholders to hold you accountable for the progress towards your policy.

By doing so publicly, you can drive change beyond your organisation, and across the sector. This can include acknowledging that deforestation, conversion, and associated human rights abuses pose regulatory, financial, and reputational risks on a client/holding level and also at a systemic level.

This will help to ensure that the implementation of your policy is not hindered by pre-existing internal standards or expectations.

If any pre-existing policies conflict with your deforestation, conversion, and associated human rights abuse policy, look to update these pre-existing policies to avoid conflicting mandates or incentives to your organisation’s personnel and partners. The goal is to ensure that the policy on deforestation, conversion, and associated human rights risks is fully incorporated into the business practices of each relevant division or function within your organisation.

This can also include adding clauses into new and re-financing agreements, which incorporate these policy requirements, and enable your organisation to interrupt or cancel financing if deforestation, conversion, or associated human rights abuses persist.

For example, banks should ideally include these policy requirements within covenants for new finance and re-financing, while asset managers should include the requirements within their investment processes and policies.

Increasing nature- and people-positive financing can be done through creating sustainable finance products such as investment funds and green or social bonds, which have specific requirements for clients/holdings on deforestation, conversion, and associated human rights abuses.

These can be used as part of the transition to deforestation, conversion, and associated human rights abuse-free portfolios by 2025 by implementing interim target dates – for instance, to be considered for the sustainable finance product, the client/holding must be free from deforestation, conversion, and associated human rights risks by 2023.

The policy scope should address, at a minimum, the most globally important forest-risk soft commodities: soy, beef, leather, palm oil, timber, and pulp and paper. Extending your policy to all forest-risk commodities, sectors, and industries is essential in achieving financial portfolios that are free from deforestation, conversion, and associated human rights abuses. This can include other forest-risk commodities such as:

  • Rubber
  • Cocoa
  • Coffee

And to other sectors and industries including:

  • Extractive industries, e.g. mining for oil, gas, coal, heavy metals
  • Infrastructure projects and companies

Extending your policy to all forest-risk commodities, sectors, and industries is important for addressing systemic risk from deforestation, conversion, and associated human rights abuses.

For the above industries and sectors, it is vital that the indirect or knock-on impacts of these projects are considered within any risk and impact assessments. The data available for these industries/sectors is not yet available at a large-scale, but as this data becomes available this Roadmap will be updated to reflect these datasets and tools.

While this Roadmap does provide high-level guidance on achieving deforestation, conversion, and associated human rights abuse-free portfolios, it links to datasets, tools, and additional guidance specific to palm oil, soy, beef, leather, timber, and pulp and paper. The phases, steps, and recommended actions may be applicable to other commodities, sectors, and industries. This Roadmap will be followed by sector-specific and separate actor-specific guidance pieces, which will provide further details.

  • CDP disclosures and datasets on corporate deforestation exposure and management include reported data on coffee, cocoa, natural rubber, mining, and coal extraction
  • EU Commission publishes non-binding guidelines for the identification of conflict-affected and high-risk areas and other supply chain risks under Regulation (EU) 2017/821 of the European Parliament and of the Council. These include definitions and open source information as well as a website that presents an indicative, non-exhaustive, and regularly updated list of conflict-affected and high-risk areas (as defined under Regulation 2017/821)
  • Global Forest Watch Pro enables the user to use geospatial data to monitor companies and banks in forest-risk commodity supply chains
  • Land Matrix provides information on large agricultural investments and land acquisitions in almost 100 countries, including information on investors, commodity, and scope
  • Mighty Earth Cocoa Accountability Map features geographic layers of cocoa cooperatives, protected areas, and cocoa and land use, and alerts of disturbance to forest cover, including deforestation and forest degradation
  • Prindex provides country-based data on the perceptions of tenure security, as well as at a local level
  • RAISG provides maps of gas and oil concessions across Amazonia
  • Trase publishes deforestation risk data for a subset of cocoa and coffee supply chains and the companies involved
  • Verite Commodity Atlas provides country level data on the risk of child and forced labour in commodity supply chains
  • ZSL SPOTT annually assesses the 15 largest rubber producers and processors on their environmental, social, and governance policies

Note that although these datasets and tools are helpful in understanding deforestation, conversion, and associated human rights risks, none provide all of the relevant data and information on their own. They are best used in combination with each other. A further list of applicable datasets and tools is available from the Accountability Framework initiative.

  • Key elements of the strongest deforestation policies for financial institutions can be found in the appendix (below)
  • The Accountability Framework’s user guide on ‘How to write a strong ethical supply chain policy’ is targeted at companies, but is a useful resource for financial institutions as it provides detail on the key elements of what makes a strong deforestation policy.
  • The Accountability Framework provides an explanation and justification for selecting a 2025 target date to eliminate deforestation and conversion from supply chains, and thus financial portfolios.
  • The World Cocoa Foundation’s Cocoa and Forests initiative details eight core commitments for cocoa companies
  • WWF provide some information on the impacts of rubber production on the planet
  • WWF’s Deforestation Fronts report details regions where coffee, cocoa, and rubber are drivers of deforestation in 2021

Recommended Action 2: Set and communicate clear requirements to clients/holdings

Once you have set your policy, it is essential to set clear requirements for your clients/holdings on deforestation, conversion, and associated human rights abuse risks to bring them into compliance with your policy and to achieve financing that is free from deforestation, conversion, and associated human rights risks.

The requirements for clients/holdings are a primary way that your organisation will turn its policy into a practical implementation and monitoring mechanism that can be applied across your entire portfolio. These requirements provide the basis for evaluating client/holding performance, structuring time-bound improvement, and monitoring and reporting progress. For this reason, it is important that the requirements be clear, specific, and aligned with good practice as specified in the Accountability Framework. This alignment will help ensure that the requests that you are making of your clients/holdings are similar or identical to requests and guidelines coming from commodity buyers (e.g., manufacturers and retailers that procure soft commodities or products containing them), civil society, industry associations, and other stakeholders that are aligning with the Accountability Framework.

The requirements for clients/holdings should include at least the following elements:

  • Set and publish deforestation-free and conversion-free commitments that align with the Accountability Framework and include a cut-off date; specific guidance for companies is available here
  • Set and publish commitments to respect internationally recognised human rights in alignment with the UN Guiding Principles and the Accountability Framework, and explicitly:
  • Set and publish commitments on traceability, which apply to all tiers of suppliers (including indirect suppliers) and which are sufficient to know and control the deforestation, conversion, and human rights impacts of materials in the supply chain
  • Cease efforts to acquire, gain control of, or develop land or resources (and cease any support for such efforts via sourcing, financing, or other means) where there is any unresolved or unremediated land conflict or rights violation
    • For those with operations with open cases/grievances on deforestation, conversion, and associated human rights abuses in their own operations and supply chains/financed projects, ensure these are ceased until the harms have been fully remediated
  • Have a publicly available grievance mechanisms through which external stakeholders can raise concerns/grievances on deforestation, conversion, and associated human rights abuse risks throughout their operations, supply chains, and financed projects as a minimum
  • Provide remediation for any environmental or social harms caused
  • Establish processes to engage with and manage non-compliant suppliers to prevent future non-compliance and eliminate deforestation, conversion, and associated human rights abuses from supply chains and portfolios
  • Establish processes to monitor and verify their operations/suppliers/financed projects or companies for compliance
  • Commit to disclose their progress towards their commitments, and their exposure to deforestation, at least annually, using commonly-agreed metrics and methods such as those of the Accountability Framework, the Global Reporting Initiative, and CDP Forests

Once you have set your policy, these requirements can also be considered as ‘expectations’ your organisation can communicate to existing, potential, and new clients/holdings in either one-on-one or collective engagement settings in Phase 3.

Signatories to the Financial Sector Commitment on Eliminating Commodity-driven Deforestation have developed a set of shared investor expectations which are publicly available to inform and support other financial institutions. These expectations are grounded in the commitment the financial institutions made, informed by relevant science and best practices, and are anticipated to evolve over time.

Notifying existing and prospective clients/holdings of your organisation’s policy and the expectations outlined above is a critical step in driving change through your financing activities. For new clients/holdings, or when financing agreements are being renewed, any further progress needed (e.g. reaching 100% of commodities traced back to farm) should be clearly defined within any financing agreement(s).

You should also communicate that existing, prospective, and future clients/holdings are required to either:

  • already be compliant with your organisation’s policy in advance of receiving financial products or services; or
  • set and publish a commitment and time-bound plan to become compliant with all requirements of your organisation’s policy within a pre-agreed time frame of no later than 2025, or four years after beginning the Roadmap.

Time-bound plans should:

  • Identify key steps the client/holding will take to address their exposure to deforestation, conversion, and associated human rights risks, with annual milestones, 
  • combine action both within and beyond supply chains, 
  • Include actions to manage their supply chain, engagement with suppliers, monitoring for compliance, engaging in landscapes and transparent reporting. 
  • Include Key Performance Indicators (KPIs) which the client/holding will report on to provide transparency and demonstrate progress

This is something which your organisation can develop in collaboration with your clients/holdings, regardless of their size or financial value, as part of your efforts to support them to have soft-commodity supply chains that are free from deforestation, conversion, and associated human-rights abuses by 2025, or within four years of beginning the Roadmap. In addition, you can work with your clients/holdings to identify key areas where your organisation can support the client/holding to improve their efforts to address their exposure to deforestation, conversion and human rights risk. You should ensure clients/holdings’ commitments and plans align with the Accountability Framework.

Examples of action plans, and companies developing and reporting against these, can be seen in the Commodity Roadmaps published by the Consumer Goods Forum Forest Positive Coalition.

Recommended action 3: Set and communicate a clear threshold for engagement

When setting a policy, it is important to include how you intend to implement your policy through your loans, investments, and other financing. It is recommended that policies include a clear threshold for either exposure to deforestation risk and/or continued non-compliance with the requirements of the policy which would trigger the engagement process for your clients/holdings.

This threshold is used to determine whether clients/holdings have a high enough exposure to deforestation, conversion, or associated human rights risk to be prioritised for engagement in Phase 3. These could be clients/holdings which are well-placed to drive greater change across the industries in which they operate. Examples of criteria might include:

  • those categorised as high- or medium-risk during the in-depth deforestation-risk and associated human rights risk assessment, including any client/holding sourcing from high-risk countries and regions
  • clients/holdings which produce, use, or finance large volumes of forest-risk commodities; the threshold to determine this will vary by commodity and geography
  • clients/holdings to which your organisation has the greatest financial exposure
  • a combination of these criteria.

It is important to communicate this threshold for engagement with clients/holdings in advance, before annual due diligence processes take place in Phase 3.

Once you have communicated your requirements for all clients/holdings regarding deforestation, conversion, and associated human rights, it is important to set a threshold of non-compliance with the requirements of the policy which would qualify clients/holdings for engagement. This is a key threshold which in Phase 3 is implemented within the annual screening and monitoring process to determine whether clients/holdings are non-compliant with your policy requirements, regardless of their exposure to deforestation, conversion, or associated human rights abuse risk.

These could be clients/holdings which:

  • do not have an equivalent commitment or time-bound plan to become compliant with your policy
    • A time-bound plan would commit the client/holding to become compliant with all requirements of your organisation’s policy within a pre-agreed time frame of no later than 2025, or four years after beginning the roadmap
  • have open cases of deforestation, conversion and associated human rights abuses in their supply chains or financing activities
  • are not making measurable progress (see below) towards your policy requirements or their time-bound plan for compliance
  • have failed to annually report progress towards their deforestation, conversion, human rights and traceability commitments
  • are found to be operating illegally
  • a combination of these criteria.

It is important to communicate this threshold for engagement with clients/holdings in advance, before annual due diligence processes take place in Phase 3.

Defining measurable progress

‘Measurable progress’ will have different meanings depending on how advanced the customer’s/client’s approach is on deforestation.

Within one year of committing to this Roadmap, clients/holdings can be encouraged to have identified all of their high-risk operations, supply chains, and financing activities.

Over a three-year period, clients/holdings can be expected to have identified and addressed at least 75% of their high-risk sourcing or financing.

Over a four-year period, clients/holdings can be expected to have identified and addressed 100% of their high-risk sourcing or financing.

For clients/holdings who have already made progress on deforestation, conversion, and associated human rights risks in their supply chains or financing, the above percentages can be adjusted accordingly to continue driving ambitious progress.

This includes:

  • What information/data the clients/holdings will need to report every 12 months to provide evidence of compliance with/progress towards the requirements set out in your policy, including progress relative to the time-bound plans set in Step B
  • Which third-party data providers, databases, other information sources, and monitoring systems will be used to complement, and/or verify reporting
    • Including the preference for information reported directly from affected rights-holders and communities where possible
  • Information on grievances reported through publicly-available grievance mechanisms could also be used, which enables greater clarity of what is happening on the ground
    • This should include both your organisation’s grievance mechanisms and those of your clients/holdings, and could include third party grievance mechanisms or cases filed with relevant regulatory bodies.

This could include using some of the datasets and tools detailed in Step A of Phase Two, and below.

Company risk exposure and performance profiles
These datasets and tools can be used to identify and understand company/investment exposure to forest-risk commodities, sectors, and industries, and also to understand the extent and effectiveness of their action on deforestation, conversion, and associated human rights abuses.

  • CDP Forests assesses companies on their progress towards removing commodity-driven deforestation and forest degradation from their operations and supply chains, based on their CDP disclosures. This provides information on the volumes of forest-risk commodities they source, as well as their actions and processes to address deforestation in their supply chains. Companies are also given a score which can easily be used to understand their performance on deforestation, with A being the highest score.
  • Forests and Finance assesses the financing of 300 companies in forest-risk commodity supply chains, and evaluates the policies of financial institutions involved. This can be used to understand how any financial institutions in your portfolios are linked to deforestation risk, as well as to evaluate their performance on these issues.
  • Global Canopy’s Forest 500 project identifies the 350 companies and 150 financial institutions with the greatest exposure to tropical deforestation risk through their production, processing, procurement, and financing of the six highest-risk forest commodities. The open source dataset also includes data on volumes of commodities used, as well as a total score for each company and financial institution reflecting their performance on deforestation and associated human rights abuses.
  • Global Forest Watch Pro uses geospatial data to monitor companies and banks in forest-risk commodity supply chains and can be used to assess the performance of high-risk upstream holdings on the implementation of their commitments on deforestation.
  • Trase maps forest-risk supply chains linking consumer countries, and traders, with places of production, allowing pension funds to see which of their holdings are exposed to high-risk regions and commodities, through traders in forest-risk commodity supply chains.
  • ZSL SPOTT assesses palm oil, timber, paper, and rubber producers and processors on the strength of their ESG policies, and publishes the full assessment online, enabling you to identify clients’/holdings’ exposure to forest-risk commodities and understand their performance on associated issues based on a score and the details of their assessments.
  • ENCORE maps the impacts and dependencies of economic sectors on nature, and can be used to identify and assess nature-related risks at a sector and sub-sector level.
  • Forest Stewardship Council (FSC) has a database of FSC certificates to understand the volumes of timber and pulp and paper used by clients/holdings, including the volume which is verified as compliant with FSC standards (equivalent to zero-gross deforestation).
  • Land-use Finance Tool can be used to identify which finance flows are deforestation-free or in line with any pre-existing climate commitments, to understand the exposure and performance of other financial institutions.
  • RepRisk provides data and metrics on the reputational risks posed by clients/holdings, which can be used to understand their performance on deforestation and associated human rights abuse risk.
  • Roundtable of Sustainable Palm Oil (RSPO) ACOPs provides data on the volume of palm oil and derivatives produced, processed or procured by RSPO member companies including that which is verified compliant with their standards (equivalent to zero-gross deforestation).
  • S&P Global provides relevant ESG ratings for companies, which may be used to identify their performance on some of the key issues around deforestation, conversion, and associated human rights abuses.
  • Supply Change assesses over 700 companies on their deforestation policies for commodities including palm, cocoa, and soy, and provides a score for each company based on their performance on key indicators, and publishes details of their assessments.
  • Trase Finance links the trade in commodities to investors and lenders worldwide. It enables financial institutions to identify the ultimate owners of companies through high-risk supply chains, as well as providing information on the exposure of those companies to deforestation-risk.
  • WWF Scorecards on palm, soy, timber provide assessments of the key companies operating in different supply chain segments, enabling you to understand the performance and exposure of key companies operating in these supply chains on deforestation, conversion and associated human rights abuses.
  • Business & Human Rights Resource Centre stores news and allegations relating to the human rights impact of over 20,000 companies. Depending on the availability of data, this ranges from a handful of articles to over a decade of news stories, civil society reports and company disclosure.

Note that although these datasets and tools are helpful in understanding deforestation, conversion, and associated human rights risks, none provide all of the relevant data and information and are best used in combination. A further list of applicable datasets and tools is available from the Accountability Framework initiative.

Details of suggested metrics that can be used to identify high-, medium-, and low-risk clients/holdings can be found in the appendices.

Appendix

The strongest deforestation policies commit the financial institution to ensuring that their financial portfolios are compliant with

The policy should also cover all branches and operations of the financial institution (including all products and services provided, in all geographical locations where the financial institution operates; for the banking sector this includes lending, underwriting and advisory services), and be clear on how the financial institution will monitor the clients/holdings in its financial portfolios for compliance with the policy.

Further, the strongest deforestation policies, drawn from the Accountability Framework initiative Common Methodology

  • are fully transparent and publicly available
  • require clients/holdings operating at all stages of supply chains to ensure that the forest-risk commodities they produce, process, procure or finance have not contributed to deforestation or the conversion of natural ecosystems, or associated human rights risks
  • have a cut-off date for all sourcing regions
  • have clear time-bound target dates.

The Roadmap

Phase 1: Understanding and mapping risk Phase 1

Phase 2: Setting an effective policy and managing risk Phase 2

Phase 3: Monitoring and engagement Phase 3

Phase 4: Disclosing Phase 4

Phase 5: Eliminating deforestation Phase 5

Going above and beyond: Nature and people positive Going above and beyond