Value creation process
Our value creation starts with human, intellectual, financial, social and relationship capitals, known as ‘inputs’:
Human capital | FMO has a stable and professional workforce. At the end of 2019, FMO employed 601 permanent and 114 external professionals, who are passionate about FMO’s mission. Our employees embody the values – making the difference, diversity, quality and integrity – that were introduced earlier this year;
Financial capital | We are a triple-A rated bank with 50 years of experience in the private sector in emerging and frontier markets. This rating follows from our ownership structure (51% of shares are owned by the State of The Netherlands) and the Dutch state guarantee. It allows us to attract funding at attractive rates. Commercial investors supply capital through FMO's (sustainability) bonds;
Intellectual capital | We are recognized as a responsible impact investor and for our in-depth knowledge of ESG management and financing in emerging and frontier markets. This knowledge makes us an attractive business partner for others in the industry;
Social and relationship capital | We have strong partnerships with (networks of) clients, knowledge institutes, governments and financial partners such as commercial investors and banks. By connecting their networks and resources to our own, and by inspiring them to act, we increase our impact on the world.
FMO’s business activities
Financing & investing. We offer long-term financing and, when needed, provide funding in local currencies to mitigate the exchange rate risk of our clients and end beneficiaries.
We offer direct medium and long-term loans at both fixed and variable interest rates, with a repayment grace period where needed.
We arrange syndicated loans by bringing together commercial banks, investors and other DFIs to raise larger financing amounts in an efficient way. FMO receives an arrangement and/or agency fee for these services.
We invest equity directly or indirectly (through funds) or co-invest with partners. We work with fund managers and investee companies to integrate sustainability into their core operations. We provide stable, long-term capital and usually sell our stake after five to ten years. FMO receives dividends and accounts for fair value gains or losses during the lifetime of an investment.
We structure our guarantees so that they meet the needs of the beneficiary, the market and the targeted creditors. This ensures companies have access to international markets and can participate in global trading.
Investment management. We manage public funds that we invest in higher-risk projects that promise substantial development impact. Through FMO IM funds and unfunded risk participations, institutional and other professional investors also have access to FMO’s expertise in impact investing in emerging and frontier markets. We offer a selection of funds with different market-based, risk-return profiles.
Advisory and capacity building. Beyond financing, we also offer advisory services and technical assistance to support clients in building profitable and sustainable businesses. This consists of support in the design and implementation of ESG risk mitigation measures, master classes and events, capacity development and sector initiatives.
We create long-term value through investing in our clients and working with others. We allocate capital and expertise to develop markets and raise industry standards to foster economic prosperity and decent work for all, reduce inequalities and help build low-carbon and climate-resilient economies.
Guided by our investment principles, we allocate capital to projects and businesses in developing countries, focusing on sectors that are crucial for job creation (SDG 8), reducing inequalities (SDG 10) and taking climate action (SDG 13). Our loans, equity and guarantees deliver financial impact and we leverage this impact by mobilizing third-party funds – public and private – through partnerships that complement our mandate and impact goals. More recently, this includes co-development of high impact models such as blended finance initiatives, risk-sharing mechanisms and market transformation programs.
Our impact extends beyond financing to achieve positive social, environmental and economic change. First, we work with our customers throughout the investment process on topics such as ESG, gender, green, technology, human capital, leadership and project development. We ensure our clients comply with our ESG requirements and continue to work with them to improve performance in line with mutually agreed ESG action plans. Second, we initiate sector initiatives that enhance ESG industry standards.
Our financial products, advisory and capacity building services give our customers the means to develop sustainable businesses. These, in turn, can provide local communities access to finance, markets, energy, food and other basic goods and services as well as decent job opportunities. These are crucial to local prosperity.
While we finance companies and projects in sectors where we believe there will be a positive impact on society and hold our clients to the highest international ESG standards, we recognize that these activities can also have a negative impact. Our investments enable companies to continue or expand their business activities. This may lead to the displacement of direct jobs in favor of a larger number of indirect jobs. For example, in the case of a bank that needs restructuring to become financially healthy again and in the position to drive SME growth and job creation. Or, people may need to be physically and/or economically resettled for the construction and safe operation of a hydro power plant, needed to generate a significant part of a country’s renewable energy supply. Unsustainable agricultural practices may deplete the soil or diminish forests and adversely affect ecosystem services such as carbon storage, water and air purification and maintaining wildlife habitat. We require our clients to identify and evaluate environmental and social risks and impact as a result of their activities and adopt a mitigation plan. We furthermore require our clients to put in place a grievance mechanism and respond to community concerns.
Throughout the lifetime of our financing, we monitor client's progress on meeting the requirements of the environmental and social action plan, and support them in building a sustainable business for the long-term. We also work towards continuous improvement of our own practices, such as our ESG approach including human rights (refer to Our investment process), our KYC procedure (refer to Our performance) and our GHG accounting methodology (refer to Our commitments).