The UK may introduce mandatory due diligence for financing forest-risk sectors

11 April 2023

The UK may introduce mandatory due diligence for financing forest-risk sectors

There is a danger that misguided investment and financial services could undo advances that have been painstakingly achieved through environmental legislation. In this spirit, the United Kingdom (UK) may be poised to do what the EU failed to accomplish in its recently adopted Regulation on deforestation-free products (FW 281) - extend the scope of anti-deforestation due diligence rules to encompass financial services. As a global centre of finance, the UK rules could add a powerful, direct impetus to efforts to protect forests – and offer a practical roadmap for similar EU initiatives. 

The House of Lords will soon vote on an amendment to the Financial Services and Markets Bill that could stop financial institutions from knowingly bankrolling companies carrying out deforestation abroad. “We cannot deforest our way to sustainable growth nor a robust financial system”, says Labour’s Lord Tunnicliffe, backing the new law.  

The amendment would extend the due diligence obligations introduced for supply chain companies under Schedule 17 of the Environment Act. The UK government’s own expert body, known as the Global Resource Initiative (GRI) Taskforce, has said that this law should apply to financial actors, too. Sir Ian Cheshire, the former Chair of Barclays and head of the GRI Taskforce, has penned an open letter to the government reiterating the Taskforce’s support for mandatory due diligence.  

The amendment ensures that financial institutions must also check whether Indigenous Peoples have given their free, prior and informed consent (FPIC) to the project or production being financed. This is important, but falls short of the full human rights protections that should be considered in deforestation due diligence systems. A “yes” vote from the House of Lords would send the amendment back to the House of Commons, where the law has significant cross-Party backing from Labour, the Liberal Democrats, Greens, the Democratic Unionists and Plaid Cymru. 

The EU, meanwhile, has kicked off a two-year impact assessment of the role of European banks and investors in driving deforestation. This process gives the European Commission the power to propose new regulations for the financial sector, as has been supported by civil society and parts of the private sector, including statements from progressive financial institutions. If adopted, the UK rules could offer invaluable practical insights for the EU assessment. 

For many years, civil society have urged EU public authorities to rein in the destructive activities financed by banks, financial institutions and national export credit agencies. With so little time remaining to avert climate collapse, the UK vote may yet lead the way.


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Category: Forest Watch

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