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Environmental & Social toolkits

FMO has developed two tools to support its clients in terms of environmental and social (E&S) risk management. The tools below are specifically targeted at private equity investment funds and microfinance institutions (MFIs) and small and medium enterprise (SME) banks.

E&S risk management tool for Private Equity Investment

Experience has shown that a significant discrepancy exists between the high-level nature of environmental and social requirements and their implementation within private equity (PE) Funds. One of the main hurdles is the design and implementation of the so-called environmental and social management system (ESMS).

It is FMO’s experience that a well-functioning ESMS can help an investment fund to enhance the business performance of its investments and in finding better deal exit possibilities. To assist its clients in private equity with the implementation of an ESMS, FMO has together with Triple Value Strategy Consulting designed an E&S tool kit aiming specifically at PE Funds.

Easy to use: Excel-based tool

The E&S tool is an Excel spreadsheet. The tool can be used by anybody who has Excel Office version 2003 or later. Since no macros or custom programming are used, the tool functions when the strictest Excel security settings are used. The data input is kept as limited as possible in order to minimize the workload for the investment fund. The corollary of this is that the output of the tool is directionally correct rather than exhaustive: the tool provides not all the answers but offers a structured approach to handling E&S aspects of investments.

Click here to download the tool.

Three main outputs

The three main categories of the E&S tool are (1) risk, (2) risk management and (3) opportunities. Based on a number of characteristics of investments, the tool provides an overview of the most relevant E&S risks, a score for the effectiveness of E&S risk management and the main E&S opportunities. Two type of risks are distinguished: sector risks and country issues. Some of the risks associated with investments in this way will not be entirely applicable, whereas others may not be included. On balance, however, the sector risks provide a good starting point for assessing the E&S risks of an investment.

Country issues are more general than the sector risks. They represent those environmental and social aspects where the country performance (partly) is inadequate. These environmental country risks are compiled from the EPI database, a cooperation of Yale University and Columbia University (http://epi.yale.edu/Home).  This database is the most wide ranging effort to monitor environmental performance on a worldwide basis.

Opportunities can range from FSC certification in forestry to energy (and thus cost) savings of industrial companies. The opportunities will be further developed taking into account new developments in industry.

Two levels

The three above-mentioned outputs are delivered at the level of individual investments and at the level of the portfolio. At the level of individual investments, the tool enables a structured approach to E&S due diligence and E&S management reviews. At the level of the portfolio the tool provides graphical overviews of the aggregated E&S situation of the entire investment fund. This overview can also be used for (FMO) reporting purposes.

Adherence to international standards:
IFC Performance Standards on Social and Environmental Sustainability

The E&S tool is based on the IFC Performance Standards3. IFC uses the Performance Standards to manage social and environmental risks and impacts and to enhance development opportunities in its private sector financing in its member countries eligible for financing. The Performance Standards have also been adopted by FMO. Together, the eight Performance Standards establish standards that the client is to meet throughout the life of an investment by FMO. 

MFI and SME sustainability guidance e-learning tool

This sustainability e-learning tool supports microfinance institutions (MFIs) and banks that finance small and medium enterprises (SME banks) that wish to reduce the environmental and social (E&S) risks in their portfolio.

Once downloaded and installed, the e-learning tool covers:

  • Step I: Getting prepared. This is an introduction to ‘What are E&S risks’ and ‘Why are E&S risks relevant’, all within the specific context of MFIs and SME banks.
  • Step II: Proceed to action helps the MFI or SME bank to organize a pilot and to define the boundaries of the project.
  • Step III: Successful implementation that helps the MFI or SME bank to formulate its own sustainability policy, taking into account the sustainability ambitions of the organization.

An extra feature of the toolkit is that it can be used in three ‘modes’.

  • The standard mode is the integral mode that guides you step-by step through the e-learning tool.
  • In free mode you decide where to start and you can freely scroll through the information.
  • Training mode gives you access to all trainings and training materials available in the toolkit. It can be used both to train groups of investment officers or as an e-learning tool for individuals.

The toolkit also contains a small library with relevant background documents.

Free use
We encourage further dissemination of this tool to other MFI's or SME banks.
Download:  MFI Sustainability Guidance e-tool

Instruction available in several languages

The MFI / SME sustainability guidance e-tool is in English. The instruction documents - office guide, field guide, training guide -  are available in English, Spanish, French and Khmer.  

The office guide explains how to implement E&S evaluations and follow-up processes in alignment with the MFI's or SME bank’s regular credit evaluation, approval and monitoring and reporting processes. The field guide offers the MFI/SME bank loan officer practical guidance to address environmental and social themes in the contact with their clients. There are two main sections:

  1. An activity assessment tool - this is a matrix, summarizing the key environmental and social risks for each of the various sectors that MFIs / SME banks work in: various forms of agriculture, services, and manufacturing. 
  2. 24 fact sheets, describing a practical approach to identifying E&S risks for each sector.

The training guide contains material that can be used for in-house training by the MFI/SME bank or the consultant supporting them.

Guidance in English

 Dirección En Español

Conseils en Francais

អនុទ្ទេស, សេចក្តីណែនាំ នៃខ្មែរ (Guidance in Khmer)

Contact

For more information, please contact Mareike Hussels, Environmental and Social Specialist Financial Insitutions, via the contact form