CASE STUDY
How early due diligence with Xilva GRADE helped to identify social issues & red flags
Objectives
Solicit an independent second opinion on their own in-house evaluation due to a lack of in-house capacity and the necessary tools to check organizational issues
Mitigate reputation risks
Launch an exercise to evaluate in-house due diligence system, and expose gaps in current process and knowledge
Results
Uncovered an erroneous point of departure for the project's social acceptance and long term success
Issue identified as a red flag for our client which implied that their involvement in the project would not continue unless this issue can be solved
Xilva’s Red flag, Risks & Recommendation table is now being used as the basis for discussions to challenge the project design and push for the necessary changes to reduce delivery risk and ensure no social conflict arises as a result of the project
Drive towards an improvement of living conditions and forest stewardship
THE CASE
Client Z was a consortium of NGO and a private fund. They were considering an investment into a large carbon project on over 100,000 hectares of degraded tropical forest in a West African country. The project was primarily cacao agroforestry doing tree-planting and assisted natural regeneration to restore a protected forest area, and the project developer was raising funds to cover deployment and operations for the next 30 years crediting period.
Due to the complexities of the large-scale project and a lack of in-house capacity, Z contracted Xilva to frontload due diligence of the project and identify potential issues that might block their investment process.
The client was particularly sensitive to safeguards and reputational issues.
WHAT XILVA GRADE UNCOVERED
Certain migrant communities dependent on cocoa farming were not recognised by the law of the country and as a result the project had not considered these individuals to be self-determined rights-holders. In effect, the project ignored them as a people that should be involved in Free, Prior and Informed consent of the project activities, and failed to take into consideration any rightful compensation activities in their financial plans. This was an erroneous point of departure for the project's social acceptance and long term success.
HOW WE DID IT
As part of the Xilva GRADE process which differentiates the framework and methodology, Xilva team found this group of people that was missing from the list of people affected by the project by:
Cross checking the project stakeholder map with those generated in similar and neighboring projects in West Africa
Checking maps for settlements in the forest area
Checking national laws relating to immigrants
Stress testing the financial plan to discover how (by including an extra cost line to engage and manage this group as participants in the project), the financial health and profit margins might be affected.
WHY IT IS IMPORTANT
By ignoring the social reality that it is a condition of poverty that determines the movement of people irrespective of the legal framework, the Project Design was setting itself up for future social conflicts, for illegal incursions back into the forest after planting and creating a considerable delivery risk to the carbon which underpinned the entire financial stability of the project. This finding had significant repercussions on the finances of the project. When the costs of including these communities in the project planning, compensation and engagement had been taken into account, the finances changed significantly and the Capital fund raise may need to be increased.
Learn more about Xilva GRADE, the framework and methodology. Contact us for a free consultation today.