Impact management guides how we assess, steer and monitor our investments, helping us strengthen our contribution to three priority SDGs: Decent Work & Economic Growth, Reduced Inequalities and Climate Action
FMO’s ambition is to maximize our impact on SDGs 8, 10 and 13 by enabling sustainable and inclusive private sector growth in emerging markets and developing economies. This commitment is at the core of our 2030 Strategy. To reach these ambitions, we invest in three key sectors: Agribusiness, Food & Forestry, Energy, and Financial Institutions. This sector focus helps us to build strong relationships and strengthen our role and expertise.
Within these three sectors, we actively seek investment opportunities that contribute to a more sustainable and inclusive economy. To inform our choices and monitor the realization of our strategic ambitions, we use labels to classify these investments: the Reducing Inequality (RI) Label for our potential to contribute to SDG 10 (Reduced Inequalities) and the Green Label for SDG 13 (Climate Action). These labels reflect the expected impact on these two SDGs, at the time of contracting.
FMO sets annual and long-term targets for its labeled investment portfolio. In our 2030 Strategy, our target is to reach a portfolio of EUR 10 billion in SDG 10 and EUR 10 billion in SDG 13 by 2030. SDG 8 (Decent work & Economic Growth) is not labeled but supported in general by promoting private sector development and investing in entrepreneurs in low- and middle-income countries.
Two objectives underlie the RI Label: increase investment in Least Developed Countries (reducing inequality between countries) and increase investment in inclusive growth (reducing inequality within countries). Each of these objectives has a set of principles, definitions, and criteria. Also, gender equality is central to our strategic ambitions in relation to SDG 10, as this SDG focuses on economic empowerment of all, equal opportunity and nondiscrimination.
The Green Label steers toward investments that have the impact potential to contribute to SDG 13. Green labeled transactions contribute to one or more of the following six objectives: climate mitigation, climate adaptation, biodiversity, water security, circular economy, and pollution prevention. The Green Label is based on FMO’s green principles, objectives, and shows how FMO aims to achieve these objectives.
FMO also provides non-financial support to its customers through a range of activities, including - among others - advisory services and technical assistance.
FMO strives to be a change agent in the field of Environmental, Social and Governance (ESG) by working with entrepreneurs who commit to operationalizing and scaling responsible business practices with us. We achieve this by supporting our customers in enhancing their ESG performance.
We want to ensure that our positive development impact is maintained in the long run without compromising the resources of future generations. However, we recognize that our activities may also result in unintended negative impacts, which may affect society or the environment. We aim to carefully identify and manage these unintended impacts through our ESG management. This is part of our impact management framework to ensure we manage positive and negative impacts – potential and actual – as well as the financial risks that may result from the negative impacts in our investment portfolio.
Essential steps in our ESG management are:
As part of its investments process, FMO assesses the transaction for its alignment with our sustainability commitments as set out in FMO’s Sustainability Policy Universe (SPU). This includes, the EDFI harmonized Exclusion List, which defines the types of activities and operating conditions which FMO will not finance or support, applicable to FMO’s borrower and its subsidiaries. The Sustainability Policy is the leading document in the SPU and reflects FMO’s commitment to apply recognized international standards of responsible business conduct to our investment activities, social and human rights safeguards, corporate governance, client protection principles, and our commitment to assess new investments for alignment with the goals of the Paris Agreement. As we require our customers to comply with these standards, we expect them to identify, prevent and mitigate negative social and environmental impacts. FMO may partially or fully rely on accepted partner institutions to operationalize the intentions of our Sustainability Policy during due diligence, contracting and monitoring.
FMO screens and categorizes customers on ESG risk, comparable to the approach used by the International Finance Corporation (IFC) and other European DFIs. For direct investments, risk categorization is based on the customer's activity and country-specific ESG challenges. For financial institutions, the risk categorization is based on the bank's existing or proposed portfolio, specific assets to be financed, and country-specific sensitive issues. Similarly, in the case of funds, the E&S risk categories of the underlying investments the fund is composed of are taken into consideration when determining the funds' E&S risk profiles. In addition, an assessment of the corporate governance (CG) risk for a customer is conducted, resulting in a CG risk classification.
During due diligence, high ESG risk customers are evaluated on their potential negative impacts as well as their ESG performance, i.e. their capacity to manage these. FMO assesses the customers’ performance in mitigating and managing ESG impacts against the IFC PS. Further, for high ESG risk customers, we conduct site visits and stakeholder engagement, with further ESG requirements defined and negotiated as needed. Dedicated ESG specialists within FMO engage actively with high-risk customers. The level and exact focus of engagement depend on the type and severity of the negative impact and/or the extent to which it poses a threat to the environment, communities, the customer and/or FMO.
FMO contractually agrees on ESG conditions and reporting requirements with its customers. These conditions often include the implementation of an Environmental and Social Action Plan (ESAP), Corporate Governance Action Plan (CGAP), and/or Client Protection Principles Action Plan (CAP)expertise and can provide technical assistance to help customers implement these action plans.
We assess all our new investments for alignment with the goals of the Paris Agreement as per FMO’s Methodology for Paris Alignment. Transactions are considered Paris-aligned if they are consistent with both the mitigation, and adaptation and resilience objectives.
We closely engage with customers on ESG matters and require annual ESG performance reports to assess progress on action plans. Depending on the customer's risk and impact profile, FMO determines the required intensity of engagement and monitoring. FMO also considers the effect of an exit on ESG risks and seeks to preserve positive impact and avoid negative impact as much as possible.
We believe that transparency and accountability are fundamental to fulfilling our mandate. To facilitate this, FMO adopted a Disclosure Policy, outlining the scope and type of information that is made available to the public. For example: annual reports, corporate- and policy-related disclosures, and information about our investments published on the FMO website, not only after, but also prior to contracting. The latter gives stakeholders the possibility to provide feedback on a proposed investment.
For project-related complaints, FMO has implemented an Independent Complaints Mechanism (ICM) and accompanying procedures. The ICM describes the structure and governance of the complaints procedure, which allows affected external parties to file a complaint concerning a project financed by FMO. In this way, FMO strives to implement a robust and independent procedure and to transparently communicate with our stakeholders.
Our approach to impact management is a living approach; one that involves continuously addressing the dilemmas and challenges we face to uphold our commitments. We conduct evaluations to assess and learn from our performance against our committed (impact) objectives and our role as ESG change agent, including assumptions that underpin our Theory of Change At the portfolio level, we perform corporate evaluations to assess FMO's contributions to the SDGs, while for fund evaluations, we selectively choose specific investments for review. Evaluations help us to be accountable and to learn from our financial and non-financial activities, and as a result, to continuously improve.
FMO cannot achieve its strategic ambitions alone. We rely on partners and other stakeholders to secure funding, innovate and create new offerings, support market creation, engage with local communities and develop new skillsets. Additionally, we engage with other European Development Finance Institutions (EDFI) to harmonize indicators to measure impact and align requirements across DFIs for customers. This alignment promotes consistent language and metrics, enabling comparability across institutions and improving transparency through standardized disclosures. It also ensures integration with global frameworks and shared data collection standards which support both external reporting and internal decision-making. FMO strives towards alignment with the Harmonized Indicators for Private Sector Operations (HIPSO), the Global Impact Investing Network (GIIN), and Impact Reporting and Investment Standards Plus.