Report of the Supervisory Board
The year 2019 has been a dynamic year for FMO. FMO is in a phase of enhancing professionalism in terms of data management systems and KYC procedures. Moreover, the focus on impact investment has been made more explicit in sourcing opportunities and providing loans and equity. Next to EU and government funds new private funds are entrusted to FMO, in particular by insurance companies and pension funds. Together with Climate Fund Managers and NGOs WWF and SNV, FMO has won the tender from the Dutch government for the Dutch Fund for Climate and Development. This unique partnership will be a test for a new business development model.
The influx of new money and the new partnerships also pose new challenges. The rise in the number of impact initiatives means the industry needs to harmonize its measuring and reporting methodologies. FMO took the lead in this area with peers from EDFIs.
FMO’s increased prominence, also in the media, illustrates the societal attention for its work and the projects that show shortcomings. FMO has around 800 clients in often fragile countries and takes risks that others shy away from. FMO operates in challenging markets where the local government often does not have the budget or the capabilities to provide a legal, social and/or physical infrastructure. FMO expects its clients to implement international ESG standards, increasing their scope of responsibility, where the government fails to do so. Having said that, there is a limit to FMO's and its clients’ responsibility, which FMO is finding hard to define.
In 2019 the Supervisory Board (SB) experienced this for itself. During a week-long visit to Kenya, we visited a wind farm that supplies 20% of Kenya’s energy. This gave us a better sense of the risks and opportunities on the ground, but also the dilemmas that FMO faces.
FMO continued to develop its organization and governance. An Executive Committee has been established to assist the three-person Management Board in strategic analysis and decision making. This step was needed to make FMO more agile in a rapidly changing world and to meet its impact and investment targets. It is also a response to the growth of the organization towards 700 staff and more active engagement with a larger number of stakeholders. With investment volumes also increasing, the need for further professionalization is apparent. FMO continued to increase its efficiency, IT capabilities and regulatory compliance, particularly in the challenging area of KYC. FMO hopes to harvest the fruits of these labors in 2020.
In 2019, we also saw FMO put more emphasis on its impact on equality, climate and jobs. Impact is embedded more fully in how FMO selects projects and grants approval to new investments. The Supervisory Board mirrored these developments by setting up an Impact Committee, which will operate alongside the existing Audit and Risk Committee and the Selection, Appointment and Remuneration Committee.
These internal developments are necessary to carry out FMO’s commitments, for instance FMO’s support for the Dutch Climate Accord, which aims for a 49% reduction of CO2 by 2030. Dutch financial institutions like FMO have pledged to report the footprint of relevant assets as of 2020 and set reduction targets for domestic and international investments by 2022.
More than ever, FMO is relevant. So is its mandate to be additional to the market and take risks where others cannot. And yet FMO is a stable bank with investments spread across 83 countries and several currencies and sectors. It is FMO's ambition to bring others along on this journey. FMO’s support of NL Business will help Dutch businesses capitalize on impact investment opportunities and align their ambitions with the SDGs. This all in alignment with the development strategy of the Dutch government, FMO's major shareholder and partner.