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The Business Case for Environmental Due Diligence

Conducting due diligence on the environmental and social practices of small and growing agricultural businesses yields financial benefits to lenders that partially or fully offset the costs involved, according to nonprofit agriculture lender Root Capital.

The issue brief is the first in Root Capital’s new Issue Brief Series, supported by the Citi Foundation and the Skoll Foundation.

Social and environmental factors have become integral to business strategy and profit generation for a growing number of companies. For many financial institutions, however, measuring and incorporating social and environmental factors into overall portfolio performance remains a challenge, Root Capital says.

The lender’s first issue brief and accompanying tools show alignment between social, environmental, and financial interests to be strongest in five areas: (1) identifying and mitigating risk, (2) generating new business, (3) identifying businesses with growth potential, (4) strengthening businesses by improving their relationships with suppliers, and (5) identifying opportunities to support more of existing clients’ unmet financial needs.

Supplementing the issue brief, Root Capital also released its social and environmental due diligence scorecards and an accompanying methodology guide to outline the organization’s approach to social and environmental due diligence in more detail. These tools are intended for public use and adaptation by other financial institutions, agri-food companies, impact investors and international development practitioners seeking to integrate social and environmental factors into business decisions.

Climate change poses a major long-term threat to institutional investments, UN Framework Convention on Climate Change executive secretary Christiana Figueres told an investors’ conference at the United Nations this month.

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