WWF (World Wide Fund for Nature), the independent conservation organisation, has launched a new Environmental Crime Financial Toolkit at the COP16 nature summit in Cali, Colombia, to help financial institutions minimise their exposure to environmental financial crime.
Developed in collaboration with financial crime software company Themis, the WWF toolkit is an open-access platform that equips firms to better detect and monitor illicit activity related to land conversion and deforestation, by highlighting red flags and risks connected with different types of environmental and financial crimes.
It also helps financial institutions strengthen their screening capacity when reviewing existing clients, onboarding new ones, and assessing risks across the whole financial sector. It is a highly practical digital resource that firms can incorporate into their existing systems.
The launch comes as environmental financial crime is worth between $110billion and $281billion and is growing by five to seven per cent every year, according to INTERPOL.
Dickon Johnstone, CEO at Themis, said: “The financial sector is potentially exposed to environmental crime risks through numerous business activities, including investment, trade finance and insurance. This naturally poses a threat from an ESG and reputational perspective but what’s more, the extensive convergence between environmental crime and other financial crimes can expose firms to serious legal and regulatory risks.
“Our hope is that this Environmental Crime Financial Toolkit will help firms to understand and mitigate these risks, thereby protecting themselves and wider society and the environment from the devastating impacts of environmental crime.”
Helping financial institutions understand environmental crime
Despite environmental crime being the third largest illegal activity globally, financial institutions have major knowledge gaps and key vulnerabilities in the global financial system when it comes to handling the proceeds of deforestation and land conversion-related financial crimes.
In a survey of 644 financial services professionals, WWF and Themis found that over 60 per cent said that a land conversion risk policy was either non-existent (45.7 per cent) or not yet developed or in place (18.6 per cent) in their firm.
Almost half of financial institutions sampled reported operating with or in high-risk sectors or areas, yet over a quarter said they did not undertake specific related due diligence, and only 17 per cent of firms monitor or screen companies and clients on a periodic or ongoing basis rather than just in the early stages of a relationship. This creates a risk if bad actors initiate illicit activity after onboarding with a bank.
Recognising the urgent need to help firms address land conversion from a financial crime and ESG perspective, the companies created the Environmental Crime Financial Toolkit to help them reduce their risk exposure to the illicit financial flows associated with land conversion, ultimately reducing the financing and impact of this harmful activity globally.
Understanding the severity
WWF says that environmental crime frequently converges with and often enables different financial crimes, including corruption and bribery, fraud, money laundering, tax evasion, and drugs, wildlife and human trafficking.
“Our natural world underpins every aspect of our societies and economies, yet we continue to witness its large-scale destruction – global wildlife populations have fallen on average by 73 per cent since 1970,” explained Tanya Steele, CEO at WWF-UK.
“Despite its rapid growth, environmental crime is rarely seen as a serious risk by financial institutions, but it in fact poses significant reputational and material risks to their operations, such as the potential of sanctions for enabling illegal activity. Environmental crime is therefore very much an economic as well as a conservation issue.
“The new Environmental Crime Financial Toolkit will help institutions understand these risks and take action to mitigate illegal deforestation and land conversion. The private sector, especially financial services, has a unique opportunity to help restore our natural world.”
WWF and Themis’ published their introductory report, titled ‘Financial Crime and Land Conversion: Uncovering the Risk for Financial Institutions’, earlier this year.
Celine Herweijer, group chief sustainability officer at HSBC, said: “As a global trade bank, HSBC understands the complexities of global supply chains and the need to take a comprehensive approach to risk management in supporting our clients. The Environmental Crime Financial Toolkit is a practical way of helping financial institutions to improve their understanding of the risks related to the natural environment alongside financial crimes and secure nature-positive outcomes.”
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