A broad range of global financial institutions are involved in forestry transactions and assets. PEFC certification offers financial institutions the reassurance that they are respecting environmental, social and governance (ESG) goals in a market where ESG principles matter more each day.
Forests and their management can impact on the profitability, longevity and risk profile of related assets including structured financial products such as sovereign bonds, development funds and carbon credits. Financial institutions are therefore increasingly incorporating certification schemes within their investment and lending risk assessments, decision-making processes and internal corporate governance policies
Certification enhances brand value and sends a positive, clear and transparent message to the market, ensuring that financial institutions stand out as business leaders, strengthening their competitiveness over time. PEFC’s certification system includes internal and external controls, and involves independent actors at a number of levels. This benefits financial institutions by offering a tool that incorporates a robust assurance system of sustainable forest management practices.
When financing, insuring or investing in projects or companies involved in forest operations or related production and trade, financial institutions need to ensure that private sector activities have minimal negative impact on forests. Moreover, responsible investors should look for ways to facilitate net positive impact.
While tools and approaches for integrating the concept of Natural Capital in ESG goals are still in their infancy, the assurance that forest certification offers about a business and its impact on nature is well advanced. Companies holding PEFC forest management or Chain of Custody certificates implement the highest standards in forest certification.
By providing transparent information on traceability and management practices, forest certification represents a means of preventing environmental damage, ensuring operators’ compliance with environmental and social policies, and supporting sustainable development.
Mainstream financial institutions increasingly recognise that ESG issues have the potential to create or diminish shareholder value and therefore need to be managed as part and parcel of fiduciary responsibility.
In the investment sector, pension funds and other investors representing combined assets of over US$ 25 trillion have signed the UN Principles for Responsible Investment (PRI) which provide a voluntary framework by which all investors can incorporate ESG issues into their decision-making and ownership practices.
The Consumer Goods Forum (CGF) is also working with the Banking Environment Initiative (BEI) on the Soft Commodities Compact. The BEI currently counts eleven international banks as members, headquartered across Europe and North America including Barclays, BNP Paribas, BNY Mellon, Deutsche Bank, Goldman Sachs, Lloyds Banking Group, Northern Trust, RBS, Santander, Standard Chartered and Westpac.
The Compact commits banks to raise the standards they expect of certain clients in high risk locations so that they are encouraged to improve their sustainability performance in line with CGF expectations through to 2020. Compact banks will confirm that customer operations have achieved the same internationally-recognised means of verification that the CGF is prioritising for timber products, including forest certification systems such as PEFC.
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