That can be because the country in question lacks financial infrastructure or is perceived as too “fragile” by private investors, because the investment concerns bold but unproven innovations with high potential, or because it requires a maturity period longer than what most investors dare to take on.
In short, we invest in entrepreneurs working in the world’s most challenging markets, who do not have access to commercial finance.
All our investments must be additional to what the market can provide and need to contribute to the UN Sustainable Development Goals. More specifically, we focus on Reducing Inequalities (SDG10), Climate Action (SDG13) and Decent Work and Economic Growth (SDG8). For every project or investment, we contractually agree with our client about the required improvements that need to be executed in the fields of human rights, environmental standards, and corporate governance. Within FMO, we have more than 70 employees dedicated to these environmental, social and governance (ESG) aspects of our transactions. We also consult external parties for additional research and independent advice. The whole decision-making process can take up from two months to four years, depending on the complexity of the project, the outcome of the preliminary investigation, the Due Diligence, and the required actions from external parties.
To ensure the company we finance is realizing the required improvements, we monitor the company for the duration of the contract. We provide extra financial support when needed.
The reality of our daily work is that we can never fully prevent incidents from occurring. What we can do is learn from what has occurred and evolve as an organization. We learn from our Independent Complaints Mechanism, from regular evaluations that are conducted for our full organization, from our partners, and from the international regulations to which we adhere. We learn the most from the dilemmas we face on a daily basis while working in these challenging business contexts; carefully weighing the interests of the broad group of stakeholders surrounding our projects.
Over the past 20 years, ESG has increasingly been integrated into our organization, investment process and business operations.
An overview of the most recent improvements:
- 2017: we published our new Sustainability Policy, which was informed by a broad external consultation process.
- 2017-2018: we developed position papers and policies on human rights, gender, land governance, coal, animal welfare, hydro power and responsible tax.
- 2018: we strenghtened the human rights lens to our ESG due diligence and stewardship by systemizing and enhancing:
- Our requirements for contextual risk analysis
- Our Broad Community Support check, including Free Prior and Informed Consent when required
- Our land rights assessments when required
- Stakeholder engagement to ensure multiple perspectives are heard.
- Our response to human rights defenders risk, including an early warning system and guidelines on how to respond if a threat against a human rights defender is received.
A human rights toolkit is in place to support the implementation of the above.
- 2019: we continued building the human rights knowledge and capacity of our employees through:
- Mandatory human rights training for every single employee at FMO.
- Advanced human rights capacity building for all our ESG staff, including advanced Human Rights training, the development of sector specific implementation guidance and coaching and mentoring by human rights experts
- 2021: we published our Position Statement on Phasing out of Fossil Fuels from Direct Investments
Since 2019, we have implemented the following improvements to the FMO Organization
- FMO’s Supervisory Board has established an Impact Committee. The Impact Committee advises FMO’s Supervisory Board on its decision-making on Impact and ESG and carries out supervision of the Management Board on these topics.
- The creation of an Impact and ESG Department. It connects over 70 professionals in FMO’s Impact team, Capacity Development (CD) team and ESG teams. It includes over 35 Environmental & Social (E&S) Officers allocated to the four sector and product departments who are responsible for screening, assessing, structuring and monitoring FMO’s investments with respect to human rights and other environmental and social issues.
- The development of FMO’s Sustainability Information System (SIS) and new ESG Governance Structure to support consistency, accountability and control.
Our stakeholders have been calling on us to become more transparent about our proposed investments and about our investment dilemmas in addition to the information shared previously.
- 2014: we established an Independent Complaints Mechanism, through which concerns about our investments can be submitted. We investigate all admissible complaints.
- 2017: we introduced ex-ante disclosure (30 days) for high-risk investments.
- 2018: we introduced ex-ante disclosure (30 days) for all investments;
- Since 2018, we have engaged in recurring dialogues with civil society organisations about the dilemmas we are facing with some of our more complex investments;
- 2018: we published our first human rights report in accordance with the UN Guiding Principles on Business and Human Rights Reporting Framework.
- Since 2019, we have also increased the degree of transparency of the risks of our investments in our annual reports. For example, in FMO's latest Annual report, we published the E&S management gaps table, which shows the type of risks and frequency with which these risks have not been managed to our satisfaction, including a description of how rightsholders may be affected and which areas pose the most severe risks to human rights infringement.