Monitoring and engagement

Screen and monitor all clients/holdings for exposure, risk, risk-mitigating measures, and performance on addressing deforestation, conversion and associated human rights abuses. This can be done using the same approach outlined in the in-depth risk assessment conducted in Phase 2 Step A, repeated annually and comparing results to previous cycles.

In annual due diligence processes this can include looking in more detail at changes since the in-depth risk assessment or the screening cycle, including:

• the progress being made towards clients/holdings time-bound plans or your policy
• any changes to the institution’s exposure to deforestation, conversion, or human rights abuse risk
• if you have set a 2025 target date and if any of your clients have not met this (or are expected not to to meet this), the client should outline gaps in progress toward meeting your target, alongside information on what it is planning to do to close these.

Monitoring approaches must use clearly defined criteria for establishing non-compliance for relevant issues.

The implementation of screening for deforestation, conversion and associated human rights policies, including deforestation due diligence, should be integrated into existing risk management and due diligence processes in alignment with a double materiality approach (i.e. taking into consideration how financing decisions impact people and ecosystems in addition to financially material risks).

In line with requirements for all commodities, you should screen and monitor all clients and holdings for exposure, risk, and risk-mitigating measures in place, as well as performance on addressing deforestation, conversion, and associated human rights abuses. This can be done using the same approach outlined in the in-depth risk assessment conducted in Phase 2, Step A, repeated periodically and with results compared to previous cycles.

It is important to highlight that, for financial institutions operating in Brazil, it is recommended to expand monitoring metrics and indicators to incorporate applicable regulatory procedures, in accordance with certain requirements outlined in the Rural Credit Manual. Other existing regulations, such as SARB 26 can also be leveraged to support continuous monitoring.

This process should be conducted at least on an annual basis. In addition to monitoring at least annually, for institutions such as asset managers this should also be conducted in response to any events that could materially impact the portfolio. For many institutions, such as banks, tracking rural credit semi-annually or even monthly can be beneficial, depending on their operational capacity and strategic ambition.

In the periodic due diligence processes this can include looking in more detail at changes since the in-depth risk assessment or the screening cycle, including:

• the progress being made towards clients/holdings time-bound plans or your policy
  • Keep in mind relevant metrics for tracking progress in the cattle supply chain such as the percentage of the supply chain producers traced and monitored, reinsertion of producers once excluded from the supply chain and recovery of degraded pastures
  • You can also understand cattle supply chain progress in relation to public policies such as the National Plan for Individual Identification of Cattle and Buffalo (PNIB)
• any changes to the institution’s exposure to deforestation, conversion, or human rights abuse risk
• if you have set a 2025 target date and any of your clients have not met this (or are expected not to to meet this), the client should outline gaps in progress toward meeting your target, alongside information on what it is planning to do to close these.

Monitoring approaches must use clearly defined criteria for establishing non-compliance for relevant issues.

The implementation of screening for deforestation, conversion and associated human rights policies, including deforestation due diligence, should be integrated into existing risk management and due diligence processes in alignment with a double materiality approach (i.e. taking into consideration how financing decisions impact people and ecosystems in addition to financially material risks).

Once non-compliance has been identified through the due diligence process, it is key to establish the severity of any non-compliance on the ground, e.g. number of cases of deforestation, conversion, and associated human rights abuses, in the operations, supply chains, or financed projects of clients/holdings. This is critical in determining which clients/holdings are priorities for immediate engagement. Guidance on how to determine the severity of non-compliance is given in the following recommended action.

In some cases, particularly for lenders providing financing directly to clients/holdings with agricultural production or processing operations, this will require investigation on the ground which can be done directly by your organisation, or through an intermediary. When using intermediaries it is essential these institutions are assessed first, to ensure they are capable of undertaking independent verification of compliance with policies.

To determine the severity of non-compliance on the ground, your organisation can assess the client/holding based on five criteria.

Three of these criteria consider the actual or potential impacts of the non-compliance on people and the environment, specifically the:

• Intensity (including the level of damage and impacts on the environment and affected rights-holders)
• Scale (including area impacted, proportion of operations, number of rights-holders affected)
• Persistence (is this a one-off case of non-compliance, or is it something that has occurred previously?)

And two criteria consider the client/holding itself, looking at their:

• Culpability for the non-compliance (what role did they play in causing or contributing to the non-compliance and/or what level of ability did they have to prevent the non-compliance?)
• Capability to remedy the non-compliance (are they able to remediate within the timeframe needed by the affected stakeholder(s)?)

Context should be taken into consideration, when assessing non-compliance against the above criteria, to inform the severity of any response measures. More detail on these criteria, including categorisations within each, can be found in the Accountability Framework initiative’s Operational Guidance on Supply Chain Management.

Once clients/holdings have been screened, and the  severity of any non-compliance on the ground identified, you can determine which clients/holdings are in need of additional engagement due to a lack of measurable progress towards the requirements laid out in your policy. Continued lack of progress is equivalent to non-compliance with the policy.

As recommended in Phase 2 Step A, clients/holdings can continue to be categorised into high-, medium-, and low-risk to determine priorities for engagement.

In Phase 2 Step B, your organisation set policy requirements which clients/holdings must meet in order to qualify for financing or investment, including any new or prospective clients/holdings. For new clients/holdings, any further progress needed (e.g. reaching 100% of commodities traced back to farm) should be clearly defined within any financing agreement(s).

The screening and monitoring of clients/holdings outlined within this recommended action can also be used for the onboarding process of new clients/holdings, to gauge their level of exposure to risk and the strength of their efforts to mitigate that exposure.

The datasets and tools recommended in Phase 2 Step A are also recommended when conducting annual screening and monitoring of all clients/holdings.

• Deforestation-Free Finance guidance on due diligence developed by Global Canopy, Neural Alpha and the Stockholm Environment Institute (SEI) 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.
  • Climate & Company, Global Canopy, and Swedish pension fund Andra AP-fonden (AP2) published a report on how AP2 carried out due diligence on its deforestation-related risks and impacts using the due diligence guidance.
• The Accountability Framework initiative’s Operational Guidance on Supply Chain Management and Topical Summary on Management of Non-Compliant Suppliers provides additional detail on how to determine the severity of any non-compliance on the ground, and how to use that information to determine next steps.
• The supplementary guidance recommended in Phase 2 is also recommended when conducting annual screening and monitoring of all clients/holdings
• Suggested metrics to identify high-, medium-, and low-risk clients/holdings can be found in the appendices at the bottom of the page.

• Minimum Monitoring Criteria for Deforestation and Conversion-Free (DCF) for Cattle Supply Chains Originating in Brazil by Imaflora, TNC, WRI and WWF Brasil published minimum criteria for Brazilian beef/leather to be carried out by the first aggregator (slaughterhouse), this can be used by financial institutions to monitor slaughterhouses and meatpackers’ progress towards deforestation, conversion and human rights abuses-free supply chains.
• Minimum Monitoring Criteria for Deforestation and Conversion-Free (DCF) Commodities Originating in Brazil by Imaflora, TNC, WRI and WWF Brasil published minimum operational criteria for companies sourcing Brazilian soy, corn, and cotton, ensuring these commodities are free from deforestation, conversion and human rights abuses.
• Rural Credit Manual is a framework issued by the Central Bank of Brazil, intended to apply to all commodities, guiding Brazilian banks on the minimum criteria that should be analyzed before granting credit for rural activities; it is/can also be used for continuous monitoring.

As in Recommended action 1, this can also be used as an opportunity to:

• Discuss why you have identified the client/holding as a priority for engagement on the topic of deforestation, conversion, and associated human rights abuse risks
  • This can include why you consider them to be high-risk based on the thresholds for engagement and non-compliance with the policy as outlined in Phase 2
• Identify the key issues the client/holding faces in addressing their deforestation, conversion and associated human rights risk identified in Phase 1/Phase 2
• Understand what measures the client/holding is taking to address their deforestation, conversion and associated human rights risks, whether these measures fulfil your organisation’s requirements for clients/holdings, and (if not) what gaps exist
• Identify what the client/holding sees as the main internal or external barriers to taking the needed mitigative action to reduce these risks

This can be done using the data and information gathered throughout the annual screening and monitoring, as well as the detailed risk-assessment conducted in Phase 2 Step A. This can include:

• the progress being made towards their time-bound plans for compliance with your policy requirements
• any changes to their policies and their implementation
• any change to their exposure to deforestation, conversion, or associated human rights risk.

If there are any concerns that were not addressed by the client/holding, or you feel external expertise is required, you can reach out to other organisations to identify whether the information provided by the client/holding shows strong enough signs of progress.

• You can reach out to organisations which host relevant working groups, and gain additional support or advice on how to engage specific non-compliant clients/holdings
• A detailed list of such initiatives or working groups was outlined in Phase 1 Step A

It is also recommended that the client/holding is required to report on their progress towards the updated time-bound plan within at least six months, and then again after 12 months. You should set out clear triggers for review e.g. if no measurable progress towards a particular target is seen within six months.

For equity and bond holders, this step could be done with the support of other investors to place greater pressure on the company to drive positive change, through shareholder resolutions, public statements and collaborations such as the Climate Action 100+, PRI Spring, or Nature Action 100 (see Phase 3, Step B for more details). For banks, this required progress could be made a condition of further/extended financing.

The ramifications of continuing to make no measurable progress towards their commitment or time-bound plans should be clearly communicated to the clients/holdings.

Implementation plans are most effective when they include:

• details of the root cause of the non-compliance
• analysis of the environmental and social impacts of the non-compliance
• established corrective actions (including remediation activities and risk-reduction criteria) that will take place
• roles and responsibilities for each of those actions
• time-bound milestones and actions, and how this will be monitored and verified.

More detail on these implementation plans to address non-compliances is included in Section 5.1 of the Accountability Framework Operational Guidance on Supply Chain Management.

When developing implementation plans it is essential to engage with rights-holders whose rights have been impacted and/or violated by your clients’/holdings’ activities to understand the nature of the impacts of their non-compliance and to determine the actions desired by rights-holders to remediate these violations/harms in accordance with their rights. Your organisation can facilitate this either directly or through an intermediary, or the client/holding can do this directly with rights-holders. Any engagement should be carried out in the rights-holders’ language and ensure that rights-holders are supported and sufficiently informed to enable them to contribute and actively shape any remediation strategies.

Once mutually agreed by the client/holding and the affected rights-holders, corrective actions should be documented as a time-bound implementation plan. The time-bound plans agreed with the client/holding and the affected rights-holders should be shared with all relevant parties as a basis for subsequent monitoring and accountability.

For further guidance on best practice for remediation activities, see the Accountability Framework Operational Guidance on Remediation and Access to Remedy.

This should also include asking your clients/holdings to report, preferably publicly, on:

• which rights-holders and relevant organisations they have engaged with as part of their remediation efforts
• which suppliers, business partners, and financiers they have engaged with as part of their time-bound plans and remediation efforts, and details of this engagement
• the degree of progress toward resolving the non-compliance, stated in specific and quantitative terms to the extent possible (e.g., “restoration was initiated for 50 of the 200 hectares that were illegally deforested”).

In addition to requiring your clients/holdings to report their progress towards their time-bound plans and remediation activities, your organisation can again engage with the rights-holders on the ground (directly or through an intermediary) to monitor the implementation of these plans and activities on the ground – and whether the actions being taken are effective and aligned with the needs of the rights-holders. As well as providing for in person engagement, continuous accessible communication channels such as dedicated phonelines should remain available to any affected rights holders, to report on compliance and any issues faced.

This should include asking your clients/holdings to report, preferably publicly, on:

• which suppliers, business partners, and financiers they have engaged with as part of their time-bound plans and remediation efforts, and details of this engagement, which could include:
  • the total number and percentage of previously blocked suppliers who have been re-inserted into the cattle supply chain following engagement
  • specific cases illustrating engagement processes and outcomes
• which rights-holders (e.g., Indigenous Peoples, local communities, smallholder producers) and relevant organisations (e.g., NGOs, community associations) they have engaged with as part of their remediation efforts, including:
  • details of remediation actions taken
  • percentage of complaints resolved within agreed timeframes
• the degree of progress towards resolving the non-compliance, stated, as far as possible, in specific and quantitative terms (e.g., “restoration was initiated for 50 of the 200 hectares that were illegally deforested”)
• evidence of the progress, e.g.  independent audits or satellite monitoring reports confirming compliance.

In addition to requiring your clients/holdings to report their progress towards their time-bound plans and remediation activities, your organisation can directly engage with rights-holders and affected communities in cattle-producing regions to verify, on the ground, the implementation and effectiveness of time-bound plans and remediation activities. This is particularly important in areas involving Indigenous Lands, Quilombola territories, or rural settlements, where actions must be aligned with local socio-environmental realities, cultural practices, and legal rights under Brazilian law as it provides clarity as to whether the actions being taken are effective and aligned with the needs of the rights-holders. 

Develop/create and maintain continuous communication channels for rights-holders (for example, toll-free phone lines 0800, WhatsApp numbers, or online reporting platforms) that are accessible, confidential, and available in Portuguese. These channels should be free of cost, publicised locally, and accessible. They must enable any affected rights-holder to report compliance concerns, socio-environmental violations, or other issues without facing barriers, retaliation, or intimidation.

• Accountability Framework Operational Guidance provides detail on the best practice for companies operating in forest-risk commodity supply chains
• Ceres ‘Investor Guide to Deforestation and Climate Change’ provides suggested questions to guide engagement with clients/holdings on deforestation and climate change issues
• The Investor Initiative for Sustainable Forests, run by PRI and Ceres has a number of investor expectations documents for companies involved in palm oil, soy and cattle supply chains.
• Ceres’ ‘Proxy voting for sustainability’ provides guidance on how your financial institution can use proxy voting to drive action on ESG issues
• OECD’s ‘Guidance for Responsible Agricultural Commodity Supply Chains’ provides guidance on agricultural commodity production which can be used to engage non-compliant clients/holdings

Continuing to engage those of your clients/holdings which have the greatest exposure to these risks is key to achieving portfolios that are free from deforestation, conversion, and associated human rights abuses.

Engagement should seek to communicate an escalating severity of consequences for continued lack of progress, in line with those communicated in time-bound action plans.

During your due diligence cycles you can identify which clients/holdings are continuing to either act too slowly or do too little to progress towards the requirements of your policy, and which are failing to address and remedy non-compliances on the ground. 

These clients/holdings should remain key priorities for engagement activities in order to bring them in line with the requirements of your policy.

The cattle supply chain in Brazil is complex and involves a wide network of stakeholders, including producers, slaughterhouses, retailers, and consumers. This complexity, while challenging, also presents an opportunity for investors to push for strong compliance commitments through collective engagement. By joining forces with other investors or cattle-related stakeholders in aligned initiatives or regulatory frameworks, it is possible to strengthen efforts to highlight to clients/holdings making little or no progress in the cattle supply chain the importance of socio-environmental and regulatory compliance. 

Aligned expectations across financial institutions regarding clients’/holdings’ compliance can also help address the risk of non-compliant clients/holdings continuing to be financed by non-aligned financial institutions. 

Some specific initiatives that investors can participate in are described in Phase 3, Step B, Recommended Action 1. 

As noted by the PRI, collaborative engagements allow investors to enhance their leverage and legitimacy, pursue collective goals, and share information with each other and other stakeholders. By aligning standards and combining efforts to promote compliance among various financial actors, we enhance transparency and long-term resilience. This collaborative approach generates case-study examples of positive outcomes that can be achieved by the broader financial sector, fostering the consistent and widespread adoption of sustainable practices.

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.