Sustainable Forest Finance Toolkit - PwC

Organisational performance1 of 1Portfolio Mgt HOMEAssessing sustainability risk in legacyclientsThe table and guidance included here and on the followingpages outlines a possible approach to assessing thesustainability risk associated with legacy clients. Theapproach will necessarily require tailoring to the bank’sparticular circumstances. A review of legacy clients shouldacknowledge existing client contracts. Where clients breachbank policy, banks should open negotiations to redress theseviolations within the framework of client agreements.A framework for reviewing client performance and risk shouldbe based on bank policy structure and client performancerequirements against which new and existing clients can beassessed. The bank has a range of options for assessinglegacy clients, from the management interview to a templateas exemplified below to assess conformity to bank policy.Additional due diligence deemed necessary may be conductedat the bank’s or client’s expense. It may be appropriate to attachweightings to policy issues identified in the policy frameworksuch that a balanced picture of the sustainability of a client’soperations is obtained.Weighting should be tailored to the nature of the existingportfolio (e.g. upstream / downstream, Northern / Southernhemisphere), and to the relative importance attached to thevarious policy requirements. For example, the bank mayconsider labour issues to be particularly critical in the regions inwhich it is active, thereby assigning a greater weighting toHuman Rights and Labour Standards.Depending on the ambition level of the policy document, policycompliance may be achieved at any point beyondthat at which basic legality and credible progress towardscertification is achieved. It may be the intention tostrengthen policy over time and move clients towards bestpractice.The overall sustainability risk rating is determined by thelevel of compliance in each area, balanced against theweighting attached to those areas by the bank, and shouldbroadly reflect the bank’s appetite for risk and the letter andspirit of the bank’s environmental and social lendingpolicies, specifically its forestry policy.The eight areas in the sample below are consistent with theManagement Interview and Client PerformanceRequirements as defined in the creation of a bank forestrypolicy.Category Weighting (%) Outstanding client performance issues Non-conforming / illegal Legal Sustainable / bestpractice1 Management and Governance2 Resource Management3 Fibre Sourcing4 Eco-efficiency and Climate Change Mitigation5 Health and Safety6 Community Well-being & Stakeholder Engagement7 Human Rights and Labour Standards8 ReportingOverall sustainability ratingStaff conducting these assessments will require training to understand how to identify and accurately assess the risks present in their clients’ businesses.Page 69pwc