Friends of the Earth Due Diligence Checklist

PROTECTING YOUR REPUTATIONAL CAPITAL

The Investor's Due Diligence Check List
Mandate for the New Millennium

Latin American countries are hastily moving forward with plans for new oil and gas projects, many of them in ecologically sensitive areas. Although project proponents promise lucrative deals for new oil and gas developments in the Andes/Amazon region, investors should get the full risk assessment of the highly controversial projects before committing company resources.

Given the mandate of the United Nations Framework Convention on Climate Change and the Kyoto Protocol, in order to secure strong industry positioning for the new millennium, the energy industry must begin planning its transition to a clean energy future. Considering dwindling public support for fossil fuel subsidies and rising demand for clean energy alternatives, it no longer makes sense for the petroleum industry to spend more than $150 billion a year on new oil and gas exploration.

New oil and gas leases in the Andean Amazon region face growing opposition by local communities and indigenous peoples as well international human rights and environmental organizations who are determined to halt the devastation of Amazon’s natural resources. Legal challenges, legislative action, boycotts, and consumer market campaigns resulting from such opposition translate into substantial financial risk. South American has huge renewable energy potential—shift capital there.

For further information and assistance in researching risks associated with these and other controversial energy projects in the Amazon region, please contact:

Amazon Watch amazon@amazonwatch.org
Tel: 310- 455-0617
Fax: 310-455-0619

Due Diligence Checklist

Make sure you are fully aware of the potential risks before committing your company’s resources. Here are some useful questions to ask before investing:

Legality: Have the appropriate legislative or regulatory bodies approved these studies? Has the project passed required environmental review and has it received proper regulatory approvals? Is the project in compliance with internationally accepted indigenous and human rights laws?

Reputational capital: What are the potential public relations costs of investing in the project? Will your institution face negative publicity and protests from impacted populations and environmental organizations?

Cumulative risks: Have the environmental and social impacts of the project been fully assessed? Are associated impacts (upstream, downstream risks) fully taken into account? Are these impact studies publicly available in appropriate languages in the region?

Land tenure issues: Does the project impact indigenous reserves or lands for which indigenous land claims remain unresolved? Does the government face legal challenges on land rights disputes?

Environmental laws: Does the project impact ecologically sensitive areas? If so, what laws would potentially be violated and does the project face legal challenges?

Absence of government oversight: What unknown risks does your project face from lack of proper environmental oversight and enforcement capacity?

Possible lawsuits: Have local communities impacted by the project been properly consulted? Have local communities given their consent for moving forward with the project? Are there legal challenges?

Cost overruns and schedule slippages: Could environmental or social controversies result in project delays or unforeseen costs?