Other reporting definitions
We have aligned our indicator definitions with internationally harmonized definitions if these are available. Below we have included the definitions of the reported indicators.
Avoided greenhouse gas emissions
We calculate the avoided greenhouse gases (GHG) of our clients for investments in renewable energy and energy efficiency projects in accordance with International Financial Institutions (IFI) Harmonized Approach to Greenhouse Gas Accounting. This is in line with the GHG Accounting Protocol. GHG avoidance for renewable energy projects is calculated as the expected electricity production once the project is operational, multiplied by the country emission factors in accordance with the IFI harmonized list of emission factors. The GHG avoidance for energy efficiency projects is the difference between the project GHG emissions and the most likely alternative (i.e. industry average GHG emission per kWh energy production). For investments in Green funds and Green lines to financial institutions, we estimate the expected GHG avoidance using a tool based on average GHG avoided per monetary unit per country and renewable energy technology. The reported amount of GHG avoided represents the expected annual GHG avoidance to be supported by the commitments of the reporting year, after applying FMO attribution rules (see above).
Carbon emissions from FMO's own operations
Carbon emissions from FMO's own operations include GHG emissions scope 1 and 2, as well as part of scope 3 emissions related to staff travel. The carbon footprint has been calculated in accordance with the Greenhouse Gas protocol by an independent consultant.
Client satisfaction shows how satisfied clients are with the services FMO offers on a scale of 1 to 10. The client satisfaction score is calculated as the average of the scores given by respondents and expressed as an absolute number between 1 and 10. The scores for 2019 are based on 143 responses from clients that participated in a client satisfaction survey held in December 2019.
Total committed portfolio includes: 1) for debt – total commitment made to customers (committed not disbursed and outstanding principal amount), netted for guarantees received; 2) for equity – current exposure (fair value) plus remaining commitment reserved for all investments made; 3) for guarantees – limit amount.
Direct jobs are defined following the HIPSO definition as the “number of full-time equivalent employees as per local definition working for the client company or project”. This includes directly hired individuals and individuals hired through third-party agencies as long as those individuals provide on-site services related to the operations of the client company. Also, this includes full-time equivalent worked by seasonal, contractual and part-time employees.
Part-time jobs are converted to full-time equivalent jobs on a pro rata basis, based on local definition (e.g., if working week equals 40 hours, a 24 hr/week job would equal 0.6 FTE job). Seasonal or short-term jobs are prorated on the basis of the portion of the reporting period that was worked (e.g., a full-time position for three months would equal 0.25 FTE job if the reporting period is one year). If the information is not available, the rule of thumb is two part-time jobs equal a full-time job.
ESG Performance Tracker
ESG Performance Tracker is the system we use to monitor the ESG risks and performance of our high-risk clients. The tracking sheet contains a list of pre-defined E&S and CG risks, based on IFC performance standards and international best practice. The E&S specialists and CG specialists give each risk that is applicable to the client a weighting of low, medium or high. Subsequently, they assess how well the client is managing to mitigate the risk, giving a performance level of Green, Amber or Red. Green performance means the level of risk mitigation is acceptable to us at the moment of assessment. Amber performance means the risk is partially but not sufficiently managed. There is, however, a clear expectation of improvement. Red performance means that the risk is not being managed at the moment of assessment. The E&S specialists and CG specialists update the ESG Performance Tracker after due diligence, during annual review and when significant changes occur. Before contracting, an independent validation of the E&S risk assessment is carried out by the E&S specialist in the Credit Department.
ESG target definition
In 2019, the target population was determined based on the following criteria: new clients with an A or B+ E&S risk category (as defined by FMO's Sustainability Policy) or those supported by a corporate governance specialist that were contracted in 2017 and 2018 where FMO was in the lead. For these 40 clients, we set a target on the percentage of high and medium ESG risk items that, after one year from contracting, were managed in line with our standards or managed evidently towards meeting our standards.
E&S issues table
The E&S issues table was compiled as follows. First, we used client level data from the ESG performance tracking system for A and B+ clients to identify the risks that have the potential to have an adverse impact (medium risks) or are likely to have a significant adverse impact (high risks) on people and/or the environment. For those, we included the risks that – according to our assessment – are not adequately managed, and are scored ‘red’. Second, we supplemented the list with information from another internal system – Sustrack – that tracks progress towards implementing action items as agreed in the ESAP, and focused on overdue action items. Third, we discussed each item with the relevant Environmental and Social Officer (ESO) to describe the issue and follow-up that has since occurred. As performance tracker assessments are completed once a year or in the case of a large change or client event, we excluded those issues which – as confirmed by our ESOs – have since been resolved. As a result, the list consists of current issues that are a high priority for our deal teams.
Equivalent number of people served via power generation
The number of people served via on-grid power generation projects is estimated by dividing the annual amount of electric energy delivered to customers during the reporting period by the power consumption per connected capita. The power consumption per connected capita is calculated as the electric power consumption per capita divided by the electrification rate (source: World Bank / IEA data).
Green labelled investments
Green labelled investments contribute to climate mitigation, climate adaptation or other footprint reduction (water, waste, biodiversity). Green labels are applied ex-ante for the new commitments in a running year. Please note that we apply the labels to new commitments, but that these are referred to as investments throughout the report. To facilitate steering on SDG 13 through our Green label, we set an annual target on ‘Green’ as a percentage of new commitments that influences client selection, project preparation and investment decisions. FMO’s Green criteria for climate mitigation and climate adaptation are in line with the IDFC - MDB list of Green investments. FMO Green definition also recognizes activities that do not directly target climate change mitigation or adaptation yet have a positive impact on the environment including water treatment, waste management and biodiversity conservation ('other footprint reduction').
All Green labelled investments need to comply with two underlying Green principles by default, namely 1) Green investments should contribute to a genuine improvement beyond the local regulatory requirements; and 2) Green investments should not contribute to a long-term lock-in of high carbon infrastructure. Based on these principles, FMO has defined a non-exhaustive list of pre-approved eligible activities such as making, installing, distributing or financing renewable energy projects/products and agriculture in line with certain certification schemes. Improvements that are not included on this list, may still be found eligible if they meet the Green principles. In these cases, a minimum threshold of 20% improvement against a baseline needs to be substantiated. For example:
Upgrade: If the investment is going towards an activity/equipment that is 20% more efficient than what it is replacing, FMO’s investment will be labelled 'Green' based on the amount of FMO's investment going towards that specific upgrade.
Expansion: If the investment is going towards an activity that is 20% more resource efficient than the company's current practice, FMO’s investment will be labelled 'Green' based on the amount of FMO's investment going towards that specific expansion.
Greenfield: If the investment is going towards an activity that is 20% more resource efficient than the current business as usual practice, FMO’s investment will be labelled as 'Green' based on the amount of FMO's investment going towards that specific greenfield.
Investments can only be labelled Green following a robust approval process. The deal team is responsible to assess its investments based on FMO's Green principles and Green definition. The deal team should supplement the request with adequate substantiation for the Green eligibility of the financed activities. A specialist independent of the investment teams assesses the label request and determines the Green percentage. For example, if FMO finances an agricultural holding that has 30% of its operations certified under a pre-approved FMO certification while the rest are not certified and don’t have other underlying Green elements, then the Green percentage for that investment will only be 30%. The approval process is traced and documented in Impact Card.
The volume of Green investments includes a decrease or increase in an existing commitment for an existing client, a new commitment for an existing client, or a new commitment for a new client. The volume of Green investments includes investments from FMO’s own books, funds managed on behalf of the Dutch government and mobilized funds. Mobilized funds are amounts committed by third parties that are demonstrably mobilized by FMO. This includes participations that were on FMO’s own books in earlier years and sold on to other investors in the running year, as well as guarantees provided by third parties on investments on FMO’s existing portfolio.
FMO’s full Green Methodology is available on FMO’s corporate website.
Human rights due diligence indicator
The total number of significant investment agreements in FMO’s portfolio for which E&S due diligence including human rights was performed, or human rights clauses were included in the contract. This includes all high E&S risk clients in our portfolio.
Total investment volume is the sum of new commitments made to customers in the reporting period by FMO, the public funds managed by FMO and by private and public participants directly mobilized by FMO.
Mobilized funds are amounts committed by third parties that are demonstrably mobilized by FMO. For example, syndicated loans where FMO is mandated arranger and parallel loans where FMO is formally in the lead. Also, loan participations by funds under advisory of FMO Investment Management are considered mobilized funds.
Net Promoter Score
Net Promoter Score shows the extent to which clients would recommend FMO to others. The client is regarded as 'promoter', 'passive' or as 'detractor'. The NPS is calculated by subtracting the percentage of 'detractors' from the percentage of 'promoters'. The score is expressed as an absolute number between -100 and +100. The scores for 2019 are based on 143 responses from clients that participated in a client satisfaction survey held in December 2019.
Number of micro loans financed
Micro enterprise loans with an original value up to US$10,000, as reported by our financial institution customers.
Number of SME loans financed
Small and medium enterprise loans with original value between US$10,000 and US$ 1,000,000, as reported by our financial institution customers.
Reducing Inequalities investments
FMO defines two sub-categories in social projects aimed at reduced inequalities: investments in the least developed countries (reducing inequality among countries) and investments in inclusive business (reducing inequality within countries). Least developed countries (LDCs) are identified by the United Nations as low-income countries confronting severe structural impediments to sustainable development.
Investments in inclusive businesses expand access to goods, services and livelihood opportunities on a commercially viable basis, either at scale or scalable, to people at the Base of the Pyramid (BOP). This is done by making them part of companies' value chain of suppliers, distributors, retailers or customers. Deals are eligible for inclusive business in case they relate to investment in inclusive business:
Agricultural SME lending;
Agribusinesses working with smallholders;
Innovative solutions for the ‘Base of the Pyramid’;
Women-owned SME lending;
Other inclusive business investments targeting female end-beneficiaries.
Whereas the sub-categories are similar to the inclusive business/gender categories of IFC, the eligibility criteria and thresholds are FMO-specific as other DFIs (including IFC) have not developed similar eligibility criteria.
Similar to Green labels, requests for Reducing Inequalities labels are made through Impact Card. For the LDC sub-label, a request is not needed if the investment is single-country and the country of impact is the same as the Country of Risk Exposure. A request for the LDC sub-label is only needed if the investment is multi-country with at least 50% of the investment expected to benefit LDC countries, or in the case the country of impact is an LDC and is different from the Country of Risk Exposure.
For the inclusive business sub-label, a request through the labels tab in Impact Card is always required. A deal team submits a request via Impact Card, after which Credit receives an email notification. Credit assesses the request for the relevant labels and decides whether the labels are granted. If the (sub)label is likely to be granted but more evidence is needed at a later stage (e.g. evidence of a use of funds clause in the contract), the label request can be conditionally approved. Credit archives the Green and Reducing Inequalities Labels tab and informs the deal team about the outcome of the assessment. Information on the Green and Reducing Inequalities status of the proposed transaction is to be included in the CIP and FP.
The number of smallholder farmers that have had active support from the client company in order to improve production practices that have beneficial effects on yields and/or reduce environmental degradation and/or improve social practices during the reporting period. Smallholder farmers are defined as marginal and sub-marginal farm households that own and/or cultivate relatively small plots of land. Common characteristics of smallholder farmers are that they have limited access to technology, capital, skills and risk management, depend on family labor for most activities, and have limited capacity in terms of storage, marketing and processing. This definition has been sourced from the UN Food and Agriculture Organization (FAO). The source documents of the reported number of smallholders supported are usually social reports or management reports from our customers.
- 1 As defined in FMO's Sustainability Policy.