Core focus SDGs
SDG 8 | Decent Work and Economic Growth
Private business activity, investment and innovation are major drivers of productivity, inclusive economic growth and job creation. SDG 8 calls for promoting economic growth that is sustained, inclusive and sustainable as well as employment that is full, productive and decent. Our contributions towards SDG 8 are demonstrated through our total investment volume, number of jobs supported and through our ESG management activities with customers that are focused among others on ensuring decent employment conditions.
Total investment volume
To stimulate economic growth, FMO provides long-term financing to developing countries that the market does not provide or does not provide on an adequate scale or on reasonable terms. Our contribution towards economic growth is measured by the total committed portfolio and new investments made in developing countries.
In 2021, our total committed portfolio in developing and emerging markets amounted to €12.5 billion (2020: €12 billion) of which €8.3 billion was on FMO’s own books (2020: €8.2 billion), €1.4 billion was through public funds (2020: €1.1 billion) and €2.8 billion through mobilized funds (2020: €2.7 billion). Compared to 2020, FMO’s committed portfolio increased by 2%, below our target of €8.8 billion. The appreciation of the US dollar and the higher market valuations in our equity portfolio partly offset the lower volume of new investments and higher prepayments observed in our loan portfolio. However, this was insufficient to further offset other outflows in our debt and equity portfolio related to mobilizing private capital - by selling off risk participations in FMO loans - and exits from direct and fund investments.
FMO new investments
In 2021, we invested a total of €1.9 billion in developing and emerging markets of which €1.2 billion was on FMO’s own books (2020: €1.3 billion), €233 million through public funds (2020: €145 million) and €521 million through mobilized funds (2020: €483 million). In line with our strategy, 54% of FMO's new investments flowed towards Africa and Asia and 29% towards countries in the European Neighborhood.
Creating and safeguarding jobs is crucial for sustainable development, as employment creates a path out of poverty. The private sector is one of the most important creators of jobs across emerging and frontier economies. DFIs are promotors of private sector development, where job provision is a key focus.
Direct jobs refer to the number of full-time equivalent (FTE) employees working for the company or project FMO has invested in. Indirect jobs refer to those that are supported by our customers through supply chains, the spending of wages, and economy-wide employment enabled by bank lending and the supply of electricity. The additional output requires more direct employment and intermediary inputs. This, in turn, leads to expansion among existing and new suppliers, thereby supporting and/or creating jobs. Some products and services – notably electricity and finance – remove constraints for other businesses, enabling them to expand and support and/or create jobs. In emerging markets, firm expansion is assumed not to displace employment in competing businesses to a significant extent.
We report on indirect jobs supported using the Joint Impact Model (JIM). It uses the most recent multi-country economic data from databases provided by organizations such as the Global Trade Analysis Project (GTAP). Macroeconomic data from 2019 and 2020 are not yet available and, as such, the numbers for indirect jobs exclude the effects of the pandemic. For direct jobs supported the customer data that was collected in 2021 reflects some of the impact of COVID-19. In 2021, we published a study in the peer reviewed Enterprise Development and Microfinance journal (volume 32, issue 1-2) to look at the potential impact of the pandemic on jobs. The study showed that disruption in supply chains could result in a 2-3% average decrease in the JIM results due to COVID-19, with services requiring proximity being most impacted. It also gave a first estimate of how the pandemic could impact our investments until more up-to-date macro-economic data will become available.
In 2021, FMO’s outstanding portfolio resulted in an estimated 644,119 jobs supported (2020: 672,492 jobs supported), of which 45,713 direct jobs and 598,406 indirect jobs. 85% of jobs supported were from FMO’s own balance sheet, while 15% were from public funds. We restated the 2020 numbers due to methodological changes to align with the PCAF Global Standard. Compared to 2020, the number of jobs supported decreased, primarily due to improved data coverage.
Customers in the AFW portfolio supported jobs in the local economy which stem mainly from supply chain effects, where jobs are supported via sourcing goods and services from producers, and induced effects from spending wages in the economy. The AFW portfolio also includes a few financial institutions focused on providing loans to SME-agribusinesses, which are represented by finance-enabling jobs.
In the energy portfolio, the jobs are mainly supported through power-enabling effects, which attribute the number of jobs to an increase in gigawatt hours (GWh) of electricity supplied to the national system. Another important driver of jobs is due to temporary effects related to projects that are currently in the construction phase.
Through our investments in the FI sector, jobs are mainly driven by finance-enabling effects that relate to economy-wide jobs generated by lending to businesses and individuals.
Through our Private Equity (PE) investments in corporates, funds, energy projects and financial institutions, our impact stems from power-enabling, finance-enabling and induced/supply chain effects, reflecting the wide-ranging activities that PE engages in.
Enhancing our contribution to decent work through our ESG activities
FMO recognizes that it is not just the number of jobs that counts, but also their quality. We require our customers to respect workers’ rights with respect to their safety, security and health, working terms and conditions, wages, and accommodation. We expect customers to treat their workers fairly, provide safe and healthy working conditions, avoid the use of child or forced labor, and identify risks in their primary supply chain.
Recognizing that we work in regions with weak regulation and in sectors relying heavily on sub-contracting, we encourage customers to go beyond standard market practices. This includes proactive risk identification, as well as the enforcement and monitoring of these requirements. We also try to increase the quality and inclusiveness of the jobs we support, for example by improving diversity and inclusion in the workforce. Community support programs linked to these projects focus on removing barriers for the employment of women and vulnerable people. Furthermore, we encourage workers’ personal development by advocating for and in many cases co-creating training for them.
SDG 10 | Reduced Inequalities
Through its investments, FMO aims to contribute towards reducing inequalities (RI). We invest in the Least Developed Countries (LDCs) to reduce inequality vis-à-vis other countries and in inclusive business to reduce inequality within countries by increasing access to goods, services, and livelihood opportunities to people who live on less than US$8 per day. SDG 10 is strongly linked to SDG 5 on gender equality.
Our results are measured in terms of our RI-labelled investments and the number of micro and SME loans provided by our customers. Beyond this, we also promote ESG management activities with our customers towards inclusivity, particularly of vulnerable people in society.
FMO labels and steers its investments towards reducing inequalities. An investment is eligible for an RI label when the ex-ante impact is targeted at LDCs and/or inclusive business. FMO’s inclusive business investments target the un(der)banked, the unconnected, youth, women, smallholder farmers and rural populations.
The RI-labelled committed portfolio increased by 7% from €3.8 billion at the end of 2020 to €4 billion at the end of 2021. This represents a 32% share of the total committed portfolio. The increase can be attributed to relatively higher investment volumes than expected, the appreciation of the US dollar and a higher valuation of our equity portfolio.
In 2021, FMO invested a total of €714 million in reducing inequalities (2020: €745 million), representing 37% of FMO's total new investment volume (2020: 39%). Of this, €387 million was invested from FMO’s own books, €137 million from funds managed on behalf of public entities and €190 million from mobilized funds. FMO was able to do more repeat deals with FI customers and identify opportunities with our customers to invest in reducing inequalities. The focus on existing customers resulted in a higher share of investments in inclusive business vis-à-vis LDCs. €540 million was invested in inclusive businesses, focusing mostly on microfinance and micro financial services, innovative solutions aimed at the bottom 40% of the population, women-owned SMEs and smallholder finance. €283 million was invested in companies and projects operating in LDCs such as Bangladesh, Burkina Faso and Cambodia.
Number of micro and SME (MSME) loans
FMO targets MSMEs because they are financially underserved and typically provide more jobs than larger corporates relative to the capital invested. FMO specifically targets women-owned and youth-owned MSMEs. FMO requires customers to adhere to the Corporate Finance Institute Client Protection Principles that, among others, focuses on the prevention of over-indebtedness, a problem that is common in microfinance.
The number of MSME loans represents the number of loans our customers have provided to MSME customers. In 2021, our customers provided 30 million micro loans (2020: 22 million). Our customers furthermore provided a total of 2.8 million SME loans (2020: 1.8 million). This increase is mainly attributed to the inclusion of micro loans made by investees from our PE funds. For our existing portfolio there was a steady increase in the number of MSME loans, while the inclusion of a large financial institution also contributed to the significant increase.
Enhancing our contribution to reduce inequalities through our ESG activities
Through our ESG management activities we assess the risk of inequality and perform due diligence (DD) using a human rights lens. Our ESG engagement supports inclusivity, often targeting vulnerable groups in the bottom 40% of the global economy. For example, we ask our customers to focus on empowering women, indigenous peoples, and other groups with impaired rights in consultation processes, resettlement plans, trainings, or livelihood support programs. We also stimulate benefit sharing and advocate community ownership.
SDG 13 | Climate action
Through its investments, FMO aims to contribute towards the targets of SDG 13 with respect to climate action including both mitigation and adaptation. Our positive contributions are measured in terms of our Green-labelled investments and financed avoided greenhouse gas (GHG) emissions. Negative contributions are measured in terms of absolute GHG emissions from FMO’s own operations and financed GHG emissions generated through our investments. Beyond this, we steer our customers towards a resilient and low-carbon economy through our ESG management activities.
FMO steers its investments towards SDG 13. Tackling climate change has been central to our strategy since we adopted our 2050 vision in 2013. FMO’s ambition is to align its investment portfolio with a 1.5-degree pathway. One way to support this ambition is to grow our Green portfolio, which is aimed at reducing GHG emissions, increasing resource efficiency, preserving and growing natural capital, and supporting climate adaptation. FMO labels its investments to capture whether, and the extent to which, they contribute towards climate action.
The Green-labelled committed portfolio increased by 6% from €3.9 billion at the end of 2020 to €4.1 billion at the end of 2021. This represents a 33% share of the total committed portfolio. The increase can be attributed to a relatively higher volume of equity investments than expected, the appreciation of the US dollar and a higher valuation of our equity portfolio.
In 2021, FMO invested a total of €544 million in Green projects (2020: €466 million), representing 28% of total new investment volume (2020: 25%). Of this total, €268 million was invested from our own books, €155 million from public funds and €121 million from mobilized funds. Compared to previous years, we invested less in renewable energy projects like wind, solar and hydro due to lower market demand, travel restrictions and internal restrictions on doing business with new customers. In addition, there were fewer Green investment opportunities in the FI market due to lower demand and greater availability of (concessional) finance.
Measuring and reporting the GHG emissions linked to FMO’s activities and investments provides insights into our positive and negative climate-related impact and how to steer our investments towards more positive impact in the future.
We report on:
Absolute GHG emissions from FMO’s own operations associated with heating and electricity used in our office buildings as well as staff travel. These are naturally much smaller than our financed absolute emissions but show what steps we are taking to reduce our operational footprint.
Financed absolute GHG emissions generated through our investments. These emissions give an understanding of our portfolio’s overall climate impact and the opportunity to reduce such emissions.
Financed avoided GHG emissions as a result of our investments, for example through the power production of a new solar park. These emissions quantify our contributions to climate change mitigation activities, which cannot be fully captured by absolute emissions. For example, a museum and a solar park might both have low absolute emissions, but the solar park supports climate change mitigation by avoiding emissions of fossil fuel fired power plants.
We report on absolute emissions scopes 1, 2 and 3 in line with the GHG Protocol. Scope 1 relates to direct emissions resulting from the activities of an organization or under their control (e.g. a power plant burning gas); scope 2 relates to indirect emissions from energy (electricity, heat and steam) used by an organization; scope 3 relates to all other indirect emissions in the value chain related to, for instance, business travel or purchased goods and services.
The financed absolute GHG emissions are reported in line with the Global GHG Accounting and Reporting Standard for the Financial Industry published by the Partnership for Carbon Accounting Financials (PCAF). The majority of FMO’s financed absolute GHG emissions are still estimated through economic modeling via the JIM. While we continue to improve our GHG emission data collection, in many of our markets, such data is not yet readily available. The JIM allows us to have a view on our portfolio and sources of emissions in the interim.
Absolute GHG emissions from FMO’s own operations
The carbon footprint of FMO's own operations amounted to 420 tCO2e (2020: 1,309 tCO2e). Scope 1 emissions amounted to 96 tCO2e, which came from cars leased for use by FMO employees. Scope 2 emissions amounted to 30 tCO2e connected to district heating that FMO obtains for its head office. Scope 2 emissions related to the use of electricity were equal to zero since FMO purchases electricity from renewable sources. Scope 3 emissions amounted to 294 tCO2e, mainly from staff travel. As we serve customers around the world, 63% of our own emissions resulted from air travel. The impact of COVID-19 led to reduced staff travel and office use, which has significantly lowered our carbon footprint compared to pre-COVID years. We made further progress to lower the emissions from our own operations through the renovation of our office in The Hague. FMO offsets the remaining emissions by investing in VCS REDD+ certified forestry credits.
Financed absolute GHG emissions
In 2021, FMO’s outstanding portfolio resulted in an estimated 5,355,185 tCO2e absolute GHG emissions (2020: 4,962,939 tCO2e), of which 1,120,803 tCO2e were scope 1, 287,038 tCO2e were scope 2 and 3,947,344 tCO2e were scope 3. The scope 3 emissions consist of two main GHG Protocol categories: purchased goods and services (1,337,844 tCO2e) related to the production and transportation of purchased products and services, and investments (2,609,500 tCO2e) related to emissions in the portfolios of our customers, which are particularly relevant for FIs. Overall, 91% of emissions were attributed to FMO’s own balance sheet, while 9% were attributed to funding from public funds.
The 2020 figures were restated due to methodological changes implemented to align with the PCAF Global Standard. With the re-stated emissions from 2020, we see that FMO’s portfolio scope 1 and 2 emissions declined from 1,612,610 tCO2e in 2020 to 1,407,841 tCO2e in 2021. Scope 3 emissions have increased from 3,350,329 tCO2e in 2020 to 3,947,344 tCO2e in 2021. These numbers are not fully comparable because of differences in data quality and data coverage between the years. We are implementing continuous improvements to improve comparability year-on-year. In 2022, FMO is working on further operationalizing its climate commitment, including to determine the best method for steering and tracking the portfolio. In accordance with the Climate Commitment of the Netherlands’ Financial Sector, FMO plans to publish its climate targets and action plan in 2022.
In our energy portfolio, most scope 1 emissions come from the remaining investments FMO has in fossil fuel-fired power plants. When direct emissions data is unavailable, the emissions estimates based on economic models cannot distinguish between different types of energy investments. In particular, this means that scope 3 emissions are likely overestimated for certain investments such as transmission & distribution and renewable energy.
The AFW portfolio is diverse, giving rise to different sources of GHG emissions. Manufacturing and processing of food products leads to CO2 emissions from energy usage. Primary agricultural production can have significant non-CO2 emissions such as methane emissions from livestock and nitrous oxide emissions from fertilizers. The AFW portfolio also includes a few financial institutions focused on providing loans to SME-agribusinesses, which have scope 3 emissions related to their investments. Emission removals from forestry projects and other activities have not been included.
In the FI portfolio scope 1 and 2 emissions are limited as these mainly pertain to the energy use by their office buildings. Most emissions stem from their loan portfolios in sectors such as agriculture, manufacturing and energy. Within their portfolios, 62% come from their customers’ scope 1 and 2 emissions and 38% come from emissions related to their customers’ scope 3 emissions from purchased goods and services. Specific use of proceeds (e.g. green credit lines) cannot yet be taken into account in emission estimations due to a lack of data.
The PE portfolio contains equity investments in corporates and projects as well as fund investments. One main driver of emissions are the remaining equity investments in fossil fuel-fired power plants. For equity investments in financial institutions and funds, the majority of emissions come from underlying portfolio companies in the energy, manufacturing and agriculture sectors.
Financed avoided GHG emissions
In 2021, FMO’s current portfolio resulted in an estimated 1,329,158 tCO2e avoided GHG emissions. 81% of these came from energy, 18% from PE and the remainder from AFW. The majority of avoided emissions come from our debt and equity portfolio in on-grid renewable power projects. These account for 85% of total avoided emissions (1,124,970 tCO2e). The avoided GHG emissions have decreased compared to 2020 due to improved data quality, in particular for attribution-related data.
Enhancing our contribution to climate through our ESG activities
We believe contributing to climate action goes hand in hand with good ESG management on an operational level. We recognize that the social dimensions of the transition to a resilient and low-carbon economy need to be carefully managed. Through our ESG engagement we address workplace issues, community benefits from projects, and aim to steer customers towards ethical supply chains. These issues are deeply linked to a ‘just transition’. For instance, our E&S activities aim to strengthen the resilience of affected communities to climate-related hazards with a focus on women, local and marginalized communities.
- 1 United Nations (2015). Addis Ababa Action Agenda of the Third International Conference on Financing for Development. The Addis Ababa Action Agenda – endorsed by the United Nations General Assembly in July 2015 – provides a global framework for financing sustainable development by aligning all financing flows and policies with economic, social and environmental priorities.
- 2 This is an alternative performance measure (APM) that is not included in the financial statements and is designed for steering purposes. For a definition of this APM, please refer to the chapter ‘How we report’.
- 3 The underlying input-output tables are heterogeneous in sources, methodology, base years, and sectoral detail. Thus for achieving consistency, substantial efforts are made to make the disparate sources comparable.
- 4 The absolute GHG emissions from FMO’s own operations do not include any (additional) emissions as a result of employees working from home, such as (increased) electricity use and heating in home offices.
- 5 VCS is the Verified Carbon Standard, a standard for certifying carbon emissions reductions. REDD+ refers to the focus on Reducing Emissions from Deforestation and forest Degradation, including sustainable management of forests.
- 6 https://www.fao.org/news/story/en/item/1395127/icode/
- 7 World Bank (2019). Working with smallholders – A handbook for firms building sustainable supply chains.
- 8 Definition according to UN Food and Agriculture Organization (FAO).
- 9 World Bank Development Indicator Database.
- 10 2020 comparable figure has been restated in 2021 from 81 million to 96 million.