Letter from the Management Board
As we review the first half of the year against our ambitions for the whole of 2019, we are pleased with the contributions we have made towards solving the world’s most pressing challenges, inequality and climate change. We did so by working closely with our clients, governments, peers and the private sector.
Our investments aim for economic, social, environmental and governance impact in the countries in which our clients are based. This links closely with our ambitions towards achieving the Sustainable Development Goals. Some of our results from the first six months include:
FMO launched its first ever risk-sharing facility under the NASIRA program with MFI Tamweelcom to support access to finance for Syrian refugee entrepreneurs. This facility will run as a pilot through the NASIRA program and MASSIF;
We signed an agreement with Scatec Solar to take a 40% equity stake in the 32 MW Kamianka project in Ukraine. This project will provide more than 10,000 people with 100% green energy;
FMO held the first Finture Solutions challenge in close collaboration with Rockstart to help Dutch start-ups to scale their business and have impact in the agri-food, renewable energy and water sectors in emerging markets;
FMO provided capacity development support to Banco Improsa’s gender finance approach aimed to better serve the women’s market.
FMO in its mobilizing role
In the first half of 2019 we crowded in more private sector finance to invest alongside us. We used our own balance sheet to mobilize commercial investors and attract additional public funds. To strengthen our relationships with the Dutch private sector, we are establishing a joint venture between FMO’s NL Business department and RVO (Netherlands Enterprise Agency) to ramp up our Dutch business-related activities. We expanded the volume of public funds currently under FMO’s management. Earlier this year, we won the tender to manage the Dutch Fund for Climate and Development (DFCD) – worth EUR 160 million – together with SNV Netherlands Development Organization, World Wide Fund for Nature and Climate Fund Managers. This fund will support developing countries to build climate resilient economies and combat climate change.
Our commitments to the SDGs
Our efforts to achieve impact on Decent Work and Economic Growth (SDG 8), Reduced Inequalities (SDG 10) and Climate Action (SDG 13) are on target. We also participated in various harmonization efforts, which seek to create a single, industry-wide approach to measuring and steering development impact. This will bring more meaning and consistency to everyone’s work. Earlier this year, for example, FMO and fourteen other European Development Finance Institutions (EDFIs) launched a multi-year harmonization initiative on responsible financing and impact measurement. This will harmonize the way we measure indirect jobs and avoided GHG emissions. In June, FMO was also voted into the IFC Operating Principles Advisory Board.
Within FMO, we worked to create an environment that is conducive to driving impact. The Supervisory Board set up a separate Supervisory Board Committee on Impact & ESG that will function alongside the Audit and Risk Committee and Selection, Appointment and Remuneration Committee. By creating an Impact & ESG department, we improved how impact is embedded in our investment teams, decision-making and governance. We also launched four new values for FMO: ‘Making the difference’, ‘Diversity’, ‘Quality’ and ‘Integrity’. Each value is underpinned by three behaviors that guide us in how we act as an organization and relate to our clients. A two-year program to further embed our values and behaviors in our thinking and decision-making is currently being rolled out. Furthermore, in line with our values, FMO defined diversity KPIs for Gender Equality (SDG 5) on which we will steer the organization and report performance.
Challenges we face
To make the world realize that the biggest challenges we are facing are Climate Change and Inequality, we sincerely believe that we as an industry of DFIs can make the difference. We will need to broaden our view and be part of the solution around the following challenges:
As a DFI industry: the need to improve our accountability and transparency efforts around our achievements and challenges;
In our local markets: the need for local governments to understand that good governance is an essential cornerstone for economic development;
In our (DFIs) home markets: the need for policy development to take a long-term view on the challenges we face in our global economy;
In the private sector of our (DFIs) home markets: the perceived risk profile of (doing business in) emerging markets, which generally reflects neither the entrepreneurial appetite nor the opportunities we encounter in emerging markets;
In the global economy: political and monetary developments in our emerging countries, as well as trade wars on a global scale, which currently lead to lower returns than we were used to, especially in the Private Equity portfolio.
Our overall pipeline of investment opportunities looks healthy and we expect to see the effects of several important initiatives, amongst which in Venture Capital and Forestry, which we ramped up in H1 of 2019.
The financial performance at year-end 2019 will show mixed results. Although our loan portfolio will continue to show growth, we experience high liquidity in certain syndication markets amongst DFIs in particular.
The valuation of our Private Equity portfolio continues to be influenced by difficulties in the emerging markets and developing economies. The economic, political and monetary developments (incl. local currency FX rates) in the following geographies - Turkey, South Africa, Nigeria and India - have impacted the valuation of our Private Equity portfolio in the first half of 2019. We also note that at a global level, valuations of Banks and Insurance companies have been under pressure, resulting in lower valuation of our investments in financial institutions. Overall, we expect that the financial performance of the Private Equity portfolio will remain challenging in the short term. This leads us to conclude that the overall target for operating income for 2019 will not be met.
By and large, we believe that we are on track for our 2019 budgeted numbers for investments on SDG 8, SDG 10 and SDG 13, as well as for our operational costs, interest revenue and service fees.
Finally, we would like to take the opportunity to thank Mrs. Farah Karimi for her service as a member of FMO’s Supervisory Board. We wish her all the best as she assumes her role as a member of the Dutch Senate.
In accordance with Article 5:25d(2)(c) of the Dutch Financial Supervision Act (Wet op het Financieel Toezicht) we state that, to the best of our knowledge:
The 2019 condensed consolidated interim accounts give a true and fair view of the assets, liabilities, financial position and profit of FMO and its consolidated undertakings;
This Interim Report 2019 includes a fair overview of the important events that have occurred during the first six months of the financial year, and their impact on the condensed consolidated interim accounts 2019; and
This Interim Report 2019 includes a description of the principal risks and uncertainties for the remaining six months of the financial year.
The Hague, August 22, 2019
Peter van Mierlo, Chief Executive Officer
Fatoumata Bouaré, Chief Risk & Finance Officer
Linda Broekhuizen, Chief Investment Officer