Dynamics of Due Diligence: How to get it "right"?

Competing interests and lack of cooperation between governments and companies can easily harm local communities, despite the best intentions of all parties involved. Solidaridad took the opportunity at the LANDac Conference in the Netherlands to host a roundtable discussion about the challenges companies face when exercising their due diligence in various policy environments.

The annual LANDac Conference in July brings together the expertise of academics, policy makers and practitioners on land governance in relation to the pressing challenges of climate change, migration and displacement, land use and investment, and deforestation and biodiversity loss – to name a few.

This year's theme was Land Governance in Transition, acknowledging the dynamic nature of humans’ ever-changing relation to physical land.

Definition: Due diligence is the investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. 

Dynamics of Due Diligence: How to get it "right"?

When operating in a context of contested authority, weak land laws, and land administrations that may be challenged by both capacity and political constraints, it is hard for companies to get it "right".

However, existing legal requirements, voluntary guidelines and formats presuppose companies can deliver and practice "due diligence". Solidaridad experts agree there are critical enabling conditions to allow for meaningful engagement throughout the process and a company cannot and should not do this alone.

It is important to open up space to share lessons and experiences – with the private sector in the room, especially on a complex and sensitive subject as due diligence and responsible land-based investment. Companies can learn from each other and also from the vast body of knowledge among experts who are part of the LANDac community.

Working definition Land Governance (FAO): Land governance concerns the rules, processes and structures through which decisions are made about access to land and its use, the manner in which the decisions are implemented and enforced, the way that competing interests in land are managed.

Questions raised, Dilemmas posed

Solidaridad hosted the round table discussion on the Dynamics of Due Diligence to raise awareness on the complex challenges of land-based investments.

The discussion triggered active participation and the various contributions brought forward key insights. The points highlighted below touch on some of the critical conditions required for effective due diligence in practice. Some relate directly to the role a company has to play, while others concern the enabling environment.

1. Know the land, the history of the land and deal with the right people.

Between and within communities, even within landowning families, views and interests diverge. Companies require a thorough understanding of interests and rights related to the land to ensure inclusive and participatory engagement.

In addition, it can be difficult to know who to deal with when it comes to local and national authorities, especially when state and customary authorities operate in the same space.

2. “There is a huge capacity challenge. There are simply not enough people to do the work.”

This comment referred specifically to technical skills required for land valuation, having a cadre of trained surveyors to cover a nation’s land bank, for example. But it lays bare the larger capacity challenge in overall systems of land administration: human capacity, as well as institutional capacity, often falls short compared to the needs.

From the national level down to community level processes and systems are unclear, lacking or fall short in funds and skilled staff to function and deal with land matters in a transparent and equitable way.

3. People need to know their rights and the value of land to understand options and negotiate.

“It is a real challenge that people who depend on their land tend to structurally undervalue it.” In addition to the capacity challenges raised above, local communities might not be aware of their individual or communal rights or lack the power and voice to stand up for these rights when confronted with investors’ interest in their land.

The question of who should provide them support is a delicate one since this work is structurally underfunded and sometimes the company steps into this void – while at the same time having a clear interest in the investment going ahead. This point also strongly relates to the business model considered for investment: to what extent are local landowners and users part of the planned investment through outgrower models or shareholding? And how are these considerations taken on board in the due diligence process?

4. Matter of timing: when does a company enter the stage?

When the state arranges the land deal before a company comes in, community engagement or possibly even displacement might have already occurred. Expectations are raised (i.e. improved infrastructure or other benefits promised) or conflict sparked, outside of the company’s control but it now has to deal with the consequences.

Secondly, during the process, there will be players who are keen to rush (to see benefits in the short term) and there will be players who are keen to go slow or stall the process. The key lesson here is that it is better to go slow and do justice to rights holders than go too fast and end up with conflict.

Lastly, the question of whether due diligence has an endpoint allowed for reflection on the fact that engagement with local stakeholders is continuous and monitoring on impact is required to track positive as well as negative outcomes of the investment to be able to steer towards more equitable development and benefit sharing over time.

In 2016, the LEGEND project started with a clear aim to dissolve the contested land concession of Makpele Chiefdom in Sierra Leone. Find out how Solidaridad helped the community solve this complex challenge.