Phase 5

Eliminating deforestation

Eliminating deforestation, conversion, and associated human rights abuses from your portfolio requires consistent efforts to monitor and engage clients/holdings to bring them into compliance with your policy within a set timeframe. Within four years of beginning this process, you will have the data, information, and processes in place to be actively eliminating commodity driven deforestation, conversion, and associated human rights abuses from your portfolio by continuing to engage your exposed clients/holdings.

By following the Roadmap up to this point, you will now have the data available to continue engaging with your clients/holdings who are making progress to help bring them in line with your policy, or to make decisions on whether to redirect financing away from high risk clients/holdings that are not making sufficient progress towards being deforestation, ecosystem conversion, or human rights abuse-free.

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

It is recommended that Phase 5 should be completed by 2025, or within four years of committing to the Roadmap at the latest.

At the end of Phase 5, you will have:

  • continued effectively engaging with your clients/holdings who are making progress on deforestation, conversion and associated human rights risks
  • identified clients/holdings which have continued to make insufficient measurable progress toward addressing risk or resolving non-compliances
  • as a last resort, looked to redirect finance away from clients/holdings who are not making sufficient progress.

To eliminate deforestation, conversion, and associated human rights abuses from your portfolio by 2025, it is vital that your organisation continues to regularly engage your clients/holdings to ensure they continue making progress to address deforestation, conversion, and associated human rights abuses in their operations and financing activities.

Recommended action 1: Continue to identify and engage clients/holdings making too little progress or with high risk exposure

Continue to follow the actions on due diligence and engagement outlined in Phase 3 to identify your clients/holdings which remain highly exposed to deforestation, conversion, and associated human rights risk and to engage those who are making too little progress towards the standards outlined in your policy and your requirements for clients/holdings.

To show that your organisation continues to act on deforestation and associated risks, annual reporting should be sustained indefinitely, even once your organisation has eliminated deforestation, conversion, and associated human rights abuses from your portfolios.

Recommended action 1: Continue to publish annual reports of clients’/holdings’ progress towards compliance with the policy

Doing this will put pressure on your clients/holdings to continue making progress towards the standards outlined in your policy. Follow the guidance detailed in Phase 4.

Financial institutions will have different limitations and restrictions on withdrawing financing. However, as a last resort, financing should ultimately be withdrawn from clients/holdings which have not made sufficient progress towards compliance with your policy requirements, their time-bound plans/commitments (both set in Phase 2), their implementation plans to correct non-compliance on the ground or the risk-reduction criteria set during engagement activities (both in Phase 3).

Recommended action 1: Redirecting financing away from clients/holdings who have not made sufficient progress toward compliance

Through engagement, your organisation can drive change beyond your clients/holdings through their supply chains and financing – active stewardship is key to maintaining portfolios that are free from deforestation, conversion, and associated human rights abuses.

Withdrawing financing from clients/holdings who have not made sufficient progress toward compliance is generally reserved as a last step in cases where engagement has not been productive or effective. The appropriate trigger and timing for withdrawing financing depends not only on the nature of the non-compliance and the company’s failure to address it but also on the type of financing and how your organisation can best use its leverage to influence positive change.

Redirecting finance can be especially impactful for ongoing corporate/project financing such as loans, insurance and working capital, but redirecting finance away from equity holdings rarely results in an immediate impact on financing and so engagement could continue for longer for shareholders.

For implementation plans set in Phase 3 Step A, it is vital to monitor the client/holding’s progress towards the implementation of the agreed corrective actions within specified timeframes. 

These decisions can be made using the data collected during your annual due diligence processes, as detailed in Phases 2 and 3, and should specifically include reviewing clients/holdings that have continually not met established corrective actions and risk-reduction criteria set by your organisation during engagement activities in Phase 3, and which have continued to make insufficient progress towards remedying the non-compliance on the ground.

Once the severity of any non-compliance on the ground has been assessed, and non-compliance with the requirements outlined in your policy have been identified, your organisation can then decide how to proceed with the relationship, and whether to consider redirecting financing away from the client/holding.

If it is an option for your organisation, you can consider suspending financing to the applicable clients/holdings until they achieve compliance with your policy or make progress towards the implementation plans set in Phase 3, choosing not to renew financing agreements when they are up for renewal, and finally withdrawing financing altogether.

Many financial institutions, especially those with Index funds, are unable to terminate financing agreements. These financial institutions should continue to prioritise engagement with their clients/holdings, and create new deforestation, conversion, and associated human rights abuse free finance products, including funds, and actively market these funds to clients. More detail on this can be found in ‘Going above and beyond’.

It is recommended that engagement continues for as long as possible, but if your organisation is considering withdrawing financing, it is vital that you engage the client/holding in advance of the decision.

If you are considering redirecting finance away from clients/holdings due to deforestation, conversion and, in particular, associated human rights abuses, it is vital to engage Indigenous Peoples and local communities who have been subject to such impacts to seek their views on continued engagement or disengagement with the client/holding.

It is also key at this point to discuss if, how, and when would be the most beneficial for those peoples and communities for financing for the client/holding to be removed. If the rights-holders request continued engagement with the client/holding this should be continued, at least until any grievances and judicial actions are resolved and remedied.

This decision to redirect financing away from clients/holdings should be considered as a last resort. If it is indicated by all of the preceding considerations (including support from any affected rights-holders), then your organisation should look to redirect finance away from clients/holdings that have not made meaningful progress.

If you do decide to redirect finance away from clients/holdings, and remove them from your portfolio, this decision and the reasons for it should be communicated to the client/holding. Making the decision public can also draw attention to the issue and drive change.

The same datasets and tools used to identify non-compliance in Phase 3 are also applicable within this recommended action.

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).

exposure to deforestation risk x steps taken to manage exposure = actual 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
  • Proportion of annual revenue which is dependent 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
  • Deforestation and human rights controversies on the ground, including non-compliance with the human rights laid out in the UN Guiding Principles on Business and Human Rights
  • 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

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