ANNEX VII
WWF SUGGESTED STANDARDS FOR BANKS' FOREST
INVESTMENT POLICIES
BACKGROUND
Despite its value to humanity, over 50% of the
world's original forest cover has disappeared and forests continue
to be lost at a rate of 9-16 million ha/year[140].
At the same time, the quality of much of the remaining forest
is declining rapidly.
Without significant changes in policy and practice,
the process of forest conversion and excessive extraction of resources
from forests will continue at an alarming rate and pose a major
threat to High Conservation Value Forests (HCVF)[141],
freshwater ecosystems, livelihoods of forest dependant peoples
and habitats of endangered species such as elephants, rhinos,
tigers and great apes.
A key strategic goal of WWF is to halt and reverse
the loss and degradation of forests worldwide. In addition to
outright protection, WWF promotes sustainable forest management
to avoid over-extraction of resources and systematic landscape
planning to protect High Conservation Value Forests from conversion.
By financing commercial operations affecting
forests, the financial sector plays a crucial role in forest conversion.
At its worst, easy access to funding encourages companies to engage
on growth paths which are unsustainable environmentally as well
as economically. In light of this danger, leading players in the
financial sector have started systematically screening potential
projects according to environmental criteria. By doing so, the
financial sector contributes towards the adoption of sustainable
business models.
WWF calls on financial institutions to adopt
policies for their financing activities affecting forests. This
document sets out suggested standards for such forest investment
policies.
SCOPE OF
FOREST INVESTMENT
POLICY
— Types of banking relationships to
which the forest investment policy ("Policy") applies:
(a) loans extended by the lending institution ("Bank"),
whether as an individual lender or as part of a syndicate, (b)
bonds underwritten by the Bank, (c) financial instruments (eg
stocks, bonds) purchased by the Bank for its own book
— Counterparties to which the forest
investment policy applies: Companies that receive financing from
the Bank ("Companies") and that (a) extract resources
from forests, (b) manage forests, (c) conduct operations in forests,
(d) conduct operations on land recently[142]
cleared of forests, (d) process or trade unprocessed forest products
(e) engage in operations with a direct impact upon forests (f)
are related[143]
to companies that are involved in any of the activities (a)-(e)[144]
— Projects/operations to which the
forest investment policy applies: The conditions of the Policy
apply to a Company's operations irrespective of division or geography
— Contracts to which the forest investment
policy applies: (a) all new proposals submitted to the Bank's
Risk Management Unit[145]
for approval (at the time of approval), (b) existing contracts
(at the time of the next semi-annual/annual review)
CONDITIONS FOR
FINANCING
Forest management
— Sound forest stewardship: The Company
adopts sound management practices for its forest-related operations,
so as to minimize negative environmental impact of its operations,
such as biodiversity loss. The Company undergoes FSC-certification
for forests under its management and/or sources its wood from
FSC-certified forests
— Wood sourcing and tracking: The Company
does not engage in sourcing from illegal logging operations[146];
the Company puts in place institutionalized processes for the
systematic tracking of all wood (chain of custody)
— Toxics management: the Company has
in place procedures to minimize and monitor the proper use and
disposal of chemicals, biological control agents and liquid, air
and solid non-organic wastes[147]
— Genetically modified organisms: The
company does not engage in the planting of genetically modified
tree species or procure timber from sources engaging in the planting
of such species
— Stakeholder involvement: Processes
are in place at the Company for regular consultation of local
stakeholders and for their participation in decision making where
such decisions affect their livelihoods
— Respect for local communities: the
Company (a) does not infringe the legal and customary rights of
indigenous/local peoples to own, use and manage their lands and
resources, (b) puts in place measures to strengthen and diversify
the local economy, (c) provides local peoples with opportunities
for employment, (d) does not engage in activities that damage
the health of local inhabitants
— Respect for employees: The Company
provides its employees with fair compensation, the right to organise
and a healthy and safe working environment
Forest conversion
— Type of forest: No conversion of
high conservation value forest
— Time period since conversion: No
projects on land converted after 1994, unless proven to be non-HCVF[148]
— Legality: No contravention of any
local, state or national law or of international agreements to
which the country concerned is a party (including, but not limited
to, moratoria on logging, declarations of protected areas, environmental
laws)
— Method of clearing: No method of
clearing that has a negative impact on the environment beyond
the immediate area planned to be cleared (eg fire)
— Legal title: No conversion of land
under dispute[149]
— Landuse planning: Landuse plan in
place with agreement of local stakeholders and companies extracting
forest resources from the area
— Impact assessment: Third party assessment
of environmental and social impact of the project/company
APPLICATION OF
FOREST INVESTMENT
POLICY
— Required level of compliance: A project/company
to be financed must satisfy conversion and management conditions.
The Risk Management Unit may grant exceptions from individual
conditions of the Policy, provided that the Company commits to
move to full compliance by the end of a transition period not
exceeding five years. In all cases where exceptions have been
granted, the (semi)-annual review shall explicitly assess the
progress that the Company has made in moving to full compliance
— Required documentation: Any proposal
must include documentation of a recent assessment of each condition
in writing. Such assessment can be undertaken either by a trusted
third party[150]
or by the Bank itself
— Enforceability of conditions: Loan
documentation should include the conditions set out in the Policy
with an understanding that false declarations of compliance or
failure to adhere to the conditions are considered events of default
— Transparency and independent monitoring:
Regular audits of the Company/Project are undertaken by an independent
third party or by the Bank, assessing the Company's compliance
with the conditions of the Policy. The summary results of these
audits are made public
— Regular review: (a) contracts are
reviewed at least annually by the Bank's Risk Management Unit,
(b) should the Company/Project be found to be in default of the
conditions of its loan facility, this triggers an immediate review
by the Risk Management Unit
— Capability building: (a) the Bank
undertakes training programmes of all personnel involved in its
credit application and approval processes to ensure an adequate
level of understanding of the Policy, (b) the Bank maintains a
dedicated Environmental Risk Assessment unit that acts as a centre
of competence towards credit officers
— Exceptions management: All exceptions
to the Policy must be approved by Environmental Risk Assessment
and a member of the Bank's Executive Board[151]
Standards appendix 1
Examples of industries whose operations directly
affect forests (not exhaustive)
— Shrimp or other aquaculture farming
— Extractive and open pit mining (eg
ore, precious stones & metals)
— Infrastructure projects (eg roads,
dams for hydroelectric power generation)
Standards appendix 2
WWF believes that illegal logging and other
forms of forest crime are part of a larger problem that includes
issues of forest governance and corruption and is much more significant
than simply a question of a few people violating resource-management
laws. WWF uses the term "forest crime" to include both
large and small-scale timber theft and a variety of issues such
as transfer pricing, breaching tax rules, any illegal aspects
of timber sourcing and circumvention of concession agreements
through bribery or deception.
— Based on the World Bank definition
(as published in the WB CEO forum on forests), illegal logging
is defined as logging outside a concession area in excess of quota
in a protected area without appropriate permits without complying
with bidding regulations
— without submission of required management
plans
— in prohibited areas such as steep
slopes, river banks, and water catchments
— protected species (as defined by
CITES or other international law)
— with duplicate felling licenses
— using girdling or ring-barking to
kill trees so they can be logged legally
— that contracts with local entrepreneurs
to buy logs from protected areas
— removing of under/over sized trees
from public forests
— reporting high volumes extracted
from forest concessions to mask that part of the volume is from
non-authorized areas outside of the concession boundaries
— using bribes to obtain logging concessions
— using deceptive transfer pricing
and other illegal accounting practices to distort prices, volumes,
cash flows and debt service levels (for example some companies
will inflate the price of imported inputs such as machinery and
deflate prices and volumes of their exports to reduce nominal
profits, their tax liability with the host country and to illegally
transfer funds abroad.)
— that engages in the illegal transport
and trade of timber or the smuggling of timber
— that is processed with out the required
licenses and that is not in compliance with environmental, social
and labour laws
Standards appendix 3
Policies and procedures in place to reduce the
level of wastes would include among others:
For Pulp and Paper Operations:
— The use of dry debarking processes
— Prevention and control of spills
of black liquor
— The preference of total chlorine
free processes but at a minimum the use of elemental chlorine
free bleaching systems
— Reduction of the use of hazardous
bleaching chemicals by extending cooking and oxygen deligification
— Aim for zero effluent discharge where
feasible. Reduce wastewater discharges to the extent feasible.
— Incinerate liquid effluents from
pulping and bleaching process.
— De-water and properly manage sludge
— Reduce the odor from reduced sulfur
emissions by collection and incineration and by using low-odor
recovery boilers fired at over 75% concentration of black liquor
— For Vegetable Oil Operations:
— The preference of citric acid to
phosphoric acid in degumming operations
— The preference of physical refining
over chemical refining
— Maintenance of hexane levels, if
used, below 150 mg / m3.
— Recirculate cooling waters
— Collect wastes for use in by-products
(animal feed) or as fuel.
— For Wood Products Operations:
— Do not use pentachlorophenol, lindane,
tributyltin, copper chrome arsenate as a preservative given that
less toxic alternatives are available for wood treatment
— Use of pressurized treatment processes
— Recycle solvent vapors where feasible
or destroy them in a combustible device or a bio-oxidation system
— Manage contaminated soil and sludge
as hazardous wastes
— A no burn policy / practice
— All hazardous materials, process
residues, solvents, oils and sludge from raw water, process wastewater
and domestic sewage treatment systems must be disposed of in a
manner to prevent the contamination of soil, groundwater and surface
waters
— Transformers or equipment containing
polychlorinated biphenyls should not be used
— Preference for Biological and non-chemical
pest control systems (eg barn owls for rat control)
Chemicals, biological control agents and solid
non-organic wastes includes among other things: NOx, VOC (volatile
organic compounds), total reduced sulfur (TRS), AOX (absorbable
organic halogens), BOD (biochemical oxygen demand), COD (chemical
oxygen demand) chlorine dioxide and elemental chlorine,polychlorinated
biphenyls (PCB), and chromated copper arsenate (CCA).
140 United Nations Food and Agriculture Organisation. Back
141
High conservation value forests are defined in the Forest Stewardship
Council's Principle 9, as forests that need special protection
for their biological value (eg they may contain rare or threatened
species or ecosystems); their environmental value (eg they serve
as critical watersheds) or their social value (eg they are the
prime source of subsistence materials, medicines and food for
local communities). Back
142
"Recently": since 1994. Back
143
"Related": owned by the same majority shareholder/ultimate
beneficiary. Back
144
Cf. Appendix 1 for examples of industries. Back
145
Unit's title will vary by organisation. Back
146
Cf. Appendix 2 for a definition. Back
147
Cf. Appendix 3 for examples of practices. Back
148
The 1994 deadline ensures consistency with the international
standard of the Forest Stewardship Council (FSC). Back
149
Includes disputes over customary rights of indigenous or local
peoples. Back
150
"Trusted third party": An auditor/certifier independent
from the Company. Back
151
Definition of appropriate level will vary from company to company. Back
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