Risk management framework
FMO has implemented a comprehensive risk management framework that reflects its banking license, support agreement with the Dutch State, and its mandate to do business in high-risk countries. The risk management framework is based on the three lines of defense principle, with the role of the first line of defense (investment departments and supporting functions) being balanced by the second line (Risk Management and Compliance) and the third line (Internal Audit) to provide independent assurance.
FMO’s risk appetite is reconsidered annually and approved by the Management Board and the Supervisory Board. Adherence to risk limits is monitored by dedicated risk committees.
FMO applies a conservative capital management framework. The only risks that FMO actively pursues are credit risk and equity risk, resulting from loans to and investments in private institutions in emerging markets. Diversification of investment risk is ensured through risk limits per country, region, sector, single and group exposures. Other risks that are not actively pursued, but are inherent to FMO’s business, are also managed to remain within the risk appetite.
FMO identifies and manages ESG risk over the lifetime of an investment. ESG criteria and requirements are guided by various standards, such as the IFC Performance Standards, OECD Guidelines and the UN Guiding Principles on Business and Human Rights.
Finally, FMO has a compliance framework to ensure compliance with laws, regulations and ethical standards. This framework entails identifying integrity risks, designing policies, monitoring, training and providing ad-hoc advice. FMO monitors compliance risk indicators that are reported to, and steered on, by management.
For further information on our risk management please refer to the Risk Management section in the Consolidated Annual Accounts.