Reputational and Integrity Due Diligence on Investors
Before deciding to invest, companies and investors will perform background research on the uncertainties and risks associated with the proposed investment. For natural resource projects, there are risks around geology, market and price developments, construction delays, operations, regulatory changes, political disruptions, and reputational issues. Feasibility studies and due diligence assessments aim to better understand these risks, reduce uncertainty where possible and be better prepared to manage them.
Governments too should understand the risks that are associated with the proposed investments and get to know the investors before entering into negotiations or signing contracts. This is particularly important for long-term agreements or ‘high stake’ investments such as natural resource or infrastructure projects, where financial, environmental or social externalities are high. But oftentimes governments do not perform due diligence assessments. The agencies in charge of attracting investment are often judged on the quantity and not the quality of investment, and due diligence can be time-intensive and costly.
In its trainings, CCSI has long advocated for governments to perform due diligence on prospective investors. However, little guidance exists on how governments can go about it. Therefore, CCSI has teamed up with Kroll, a leading global provider of risk solutions that regularly performs Reputational and Integrity Due Diligence (RIDD) on investors, to develop a guide on (1) how to decide when to conduct RIDD, (2) how to conduct basic checks, and (3) when and how to engage with third parties to conduct a RIDD.
This is part of a broader ongoing project of CCSI that seeks to support host governments and civil society to better assess the quality of investments and underlying investors. For more information and tools available to support governments with assessing, planning, negotiating, implementing, and monitoring large-scale investments please visit our negotiation support portal. Our “company personalities” interview series may also be of interest to understand some of the drivers of investor negotiation strategies.