Understanding why, how, and when to screen

Investment screening is an early evaluation of a proposed investment based on legal and policy criteria. It helps governments assess whether an investment aligns with national development objectives and international principles. The report stresses that irresponsible investments, especially in agriculture, have caused social, environmental, and financial harm, making screening crucial to mitigating risks. Timely screening allows governments to shape or reject proposals before commitments are made, avoiding future conflicts or negative outcomes.

Conducting due diligence on proposed investors and investments during screening

Due diligence is essential for gathering information about both the investor and the proposed project. Governments should seek data on the investor’s financial capacity, reputation, commitment to sustainability, and past performance. Independent verification beyond what the investor provides is crucial to ensure a comprehensive evaluation. This involves assessing the business plan, technical expertise, and potential social and environmental impacts. Practical challenges, such as access to reliable data and weak frameworks for information verification, can impede the effectiveness of due diligence.

Evaluating investment proposals: Making screening decisions based on information uncovered during due diligence

Screening decisions should be grounded in both qualitative and quantitative assessments. A positive test approach, where the investor must prove compliance with national and international standards, is recommended. This contrasts with negative tests that assume approval unless significant issues arise. The report suggests that positive tests better ensure responsible investment by demanding thorough project evaluation. Screening should consider various factors, including investor character, project feasibility, environmental impact, and alignment with national goals. Importantly, the report advises avoiding rigid timelines for screening, which can lead to rushed decisions and overlooked risks.

Type of assessment

Assessments can be qualitative (value judgments) or quantitative (scoring systems), with both approaches having merit. Qualitative assessments allow governments to evaluate an investment’s alignment with national priorities, while quantitative assessments offer structured evaluations through key performance indicators (KPIs). A hybrid model, combining both methods, is often most effective, providing a balanced evaluation of financial, social, and environmental outcomes. For example, the report suggests using a “traffic light” system, where responses are categorised as green (approved), amber (requiring clarification), or red (rejected). This system helps facilitate nuanced decision-making in complex investment cases.

Test thresholds

Investment tests typically focus on investor character, national security, and national interest. The report also introduces a “responsible investment” threshold, which ensures that projects adhere to sustainable development goals, human rights standards, and environmental protections. This threshold is crucial for rejecting projects that do not demonstrate a clear commitment to responsible practices. For example, New Zealand’s “good character” test for foreign land investments provides a model for ensuring investors meet these criteria. The report advocates for this approach as a way to prevent investment failures and mitigate risks.

Tools and resources for government officials

The report provides practical tools to aid in screening investments. These include sample key performance indicators (KPIs) and scorecards, which help standardise the screening process. By offering a framework for evaluation, these tools ensure that governments can consistently assess whether an investment is responsible and aligned with their national objectives. This supports transparency and enhances decision-making processes.