Your analysis must focus on this specific question and document how much the financial institution is having a positive or negative impact through its financing and investments activities.
In other words, your analysis must focus on this specific question: What is needed in the analysis to make sure the link between the financial institution and deforestation, Human Rights abuses, and others is strong enough? and document the extent to which the financial institution is having a positive or negative impact through its financing and investments activities.
You can look at how much money the bank has either invested or financed into a specific industry (e.g. renewable energy), a specific activity (e.g. oil exploration) or a specific instrument (eg. green bonds) to determine whether, and how much, it is putting capital at work for positive or negative impact.
For example, if a bank has raised money in the form of a green bond on behalf of a corporation, then this would be considered financing.
If a bank manages a large pool of assets on behalf of investors, then it is considered an investment.
In your analysis, you should focus on investment or financing being made by financial institutions into projects/companies/sectors having either a positive or negative impact.
In your analysis, try to quantify the impact of the investment using the IMP framework:
Remember that an investment is mainly an input, and at Impaakt, we try to measure the output, outcome and impact of a company's products and services.
If a company uses both financial instruments (debt & equity) as well as direct and indirect financing, you may discuss the aggregate in one analysis if it relates to one specific topic, i.e., deforestation, or exploitative labour.
Equity Investment: Financial institutions can invest in companies directly or indirectly. To assess how attributable the impact is on the financial institution holding shares or stakes in a company, all of the following must be considered:
The investments must be direct. Direct investments involve gaining an interest in a company, providing the investing party effective influence. Larger financial institutions controlling significant stakes in companies end up having some form of control, often involuntarily.
As a general rule, the interest must reach a minimum of 5%. Such a level suggests that the financial institution is likely to have an influence (such as the appointment of Board members) on how the company is being managed. Of course, this is a soft limit, as a company may have a 3% stake or share and still exert influence, typically for a very large company without significant shareholders.
Debt Financing: To assess how attributable the impact is on the financial institution providing loans, bonds, and/or credit in a company, the following must be considered:
If loans amount to over >USD or EUR 100 million, then we can assume the loans are significant.
For impact scale assessment purposes, you should describe the investments in the broader context, i.e. how much is this investment compared to overall investments, or what proportion of the global financing received by the project came from this specific financial institution.
The more details that can be provided about the type of investments, the better. This includes: how much the loan accounts for out of the total funding needed for a specific project or activities, how many projects or activities it is funding, and the context. The minimum requirement would be to know how much the financial institutions provided in loans.
