Materiality assessment

We review our material sustainability topics every reporting period to ensure they represent our organization’s most significant impacts. In the chapter, we describe the process and the outcome of our materiality assessment.36

How we determined our material topics

This year, we continued to report in accordance with the GRI Standards. At the same time, we updated our materiality assessment methodology to bring it closer in line with the terminology used by the European Sustainability Reporting Standards (ESRS). Specifically, we identified a longlist of actual and potential, positive and negative impacts resulting from our activities and business relationships and mapped them to where they occur in the value chain (our direct operations, upstream and downstream). Furthermore, we introduced a scoring methodology to determine the significance of each impact and, subsequently, our material sustainability topics. This approach allowed us to gain deeper insights into the impacts FMO has or could have on the economy, environment, and people.

We followed a six-step approach, as outlined below, to identify our material topics across our sectors, regions, value chain and business relationships.

(1) Current state assessment: We conducted a thorough assessment of our operating context and activities, which included a review of our previously determined material topics, internal sources (e.g. previous annual reports, Strategy 2030, and other key internal documents) and external sources (e.g. relevant reporting guidelines and standards, as well as peer and trend reports). This resulted in a longlist of sustainability topics, which was then consolidated into a shortlist. The consolidation aimed to ensure the topics accurately reflected and grouped FMO's impacts, removing topics that represent the way FMO addresses its potential impacts (e.g. innovation, mobilizing private and public capital) rather than the impact itself. During this step of the process, we also compiled an impact register, listing actual and potential, positive and negative impacts linked to the sustainability topics outlined in the shortlist. 

(2) Value chain mapping: Based on the internal documents used for the current state assessment, we mapped our value chain by categorizing our operations and business relationships into upstream, operational, and downstream activities. This helped us understand where in the value chain FMO - through its activities, products, and services - significantly impacts the economy, environment, and people.

(3) Stakeholder engagement: We conducted 15 face-to-face interviews with internal and external stakeholders37 to fine-tune the list of relevant impacts drafted in step one of the process, ensuring the impacts were accurately reflected and any existing gaps were addressed. The external stakeholders we interviewed included representatives from the Dutch Ministry of Foreign Affairs and Ministry of Finance, representing FMO's shareholders, as well as from the Association of European Development Finance Institutions (EDFI), representing the DFI stakeholder constituency. The internal stakeholders we interviewed included employees who frequently engage with other key stakeholder groups (i.e., employees, customers, NGOs and local communities, investors, public investment partners, and supervisor/regulator), which allowed them to provide a broad stakeholder perspective of FMO’s impacts. For additional information on how we engage with these stakeholders, please consult the ‘Stakeholder dialogue’ section included in this chapter. 

To facilitate a more focused discussion, we assigned each interviewee two to four sustainability topics related to his or her area of expertise. For each topic, we asked the interviewee to explain how, in their opinion, FMO is impacting the economy, environment, and people. We used the outcomes of the interviews to develop a list of actual and potential, positive and negative impacts per sustainability topic.

In addition to the interviews, we conducted an online survey among employees, customers, NGOs and other stakeholders about FMO’s impact related to the sustainability topics identified in step one. We used the outcomes from the survey to sense check the input collected through the interviews.

(4) Impact review: We organized three workshops to review, validate and score the identified impacts. As a result of the review and validation, we refined the list of impacts by removing the ones that were found to be irrelevant and merging impacts that referred to the same issue. We scored each impact based on scale, scope, irremediable character and likelihood. Based on the score, we arranged the impacts associated with each topic from most to least significant. Internally, we agreed that impacts above a certain cut-off point or threshold, would be considered material, as these are the topics where FMO has the greatest impact. These are also the areas of greatest priority for FMO, thus they have been selected for reporting.

(5) Topic prioritization: We determined the materiality of the sustainability topics based on the significance of the impacts. A sustainability topic that consisted of at least one material impact was considered material and was prioritized for reporting.

(6) Validation: We presented the outcomes to our Management Board for validation and approval.

Results

Our materiality assessment resulted in the following list of material sustainability topics. All topics hold equal importance for FMO and our stakeholders and are presented in alphabetical order in the table below.

We provide further information about our performance regarding the identified material topics and how we manage the impacts associated with them throughout the report. Please refer to the Connectivity Table below for the specific sections where this information is available.

Most relevant changes compared to last year

When comparing the current list of material topics to previous years, notable additions include 'pollution', 'water resources', and 'biodiversity'. These topics are not new to FMO as we manage the risks and impacts related to these areas as part of our ESG activities. Last year, these topics were aggregated under the topic 'Promoting ESG management and value add' and emerged as standalone topics in this year's materiality assessment as we aligned the material topics, where relevant, with the terminology used by the ESRS. Other changes this year include the removal of topics such as 'cooperation and harmonization with other DFIs' and 'enabling meaningful innovation', as they represented actions to achieve impact rather than clear sustainability topics. For this same reason, we changed the names of some of our previously identified material topics. We also revised the definitions of some of the topics that had been identified as material in our 2022 materiality assessment to better reflect the impacts identified in this year’s assessment. For detailed descriptions of the material topics, please refer to appendix 'Sustainability topics' in the Indexes section available on our website.

Our involvement with 'biodiversity', 'pollution', and 'water resources' is primarily through our investments, resulting in indirect impacts. We manage impacts related to these environmental areas through our ESG risk management activities. As part of this approach, we require customers to assess investment-related risks and comply with industry standards like the IFC Performance Standards. Through our E&S practices, we apply IFC Performance Standard 3: Resource Efficiency and Pollution Prevention which is specific for water and pollution (i.e. air, noise, water) related impacts and for opportunities on efficiencies (i.e. energy or water); and IFC Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources for impacts on ecosystems services and other natural living things.

During due diligence, we use environmental and social impact studies (ESIAs) and baseline information to define materiality and assess management approach adequacy. In cases where further improvements are required around the management of risks, environmental and social action plans (ESAPs) are incorporated into the contract to address these gaps. At customer monitoring, we track impact and assess current management risks. If negative impacts occur due to gaps in the management process, we register this in a performance tracker. We report only in case of management gaps. We're currently developing KPIs to steer and monitor on our biodiversity ambitions, encompassing both positive and negative impacts.

We evaluate the effectiveness of our actions through our ESG risk management activities, systematically identifying, assessing, and mitigating ESG risks. We set an annual ESG performance target for high ESG risk customers in our portfolio and monitor the degree to which our customers are adequately managing E&S risks. The results are disclosed in the chapter 'Performance against our strategy'.

Stakeholder and community engagement is a key principle embedded within the IFC Performance Standards. This means that FMO is committed to actively engaging with stakeholders and local communities throughout the project lifecycle to understand their concerns, incorporate their perspectives into decision-making processes, and mitigate any negative impacts on them.

Managing impacts

The Supervisory Board Impact Committee advises the Supervisory Board on its decision-making regarding impact- and ESG-related matters. The daily management of our bank lies with the Management Board, which is supported by the Impact and Sustainability Committee (ISCO).

The ISCO drives the impact and sustainability agenda through improved decision-making, coordinates implementation of sustainability related topics, and interprets external developments, with a view to implementation consequences. The Management Board has delegated the responsibility for managing impacts to different departments. The Strategy department is tasked with managing FMO’s corporate strategy and implementation, including defining the impact and sustainability strategy and related policies. FMO’s strategic goals and objectives are cascaded down to the investment departments, which are supported by the respective Impact and ESG+ departments. These departments are responsible for identifying the areas in which we can work with customers to minimize our negative impacts and optimize our development impacts, building customer capabilities and for the integration of sustainable standards in our investment processes. The Credit department is responsible for performing an independent review of our impact and ESG assessments at a transaction level.

The Finance, Impact & Data department, together with the Strategy department, prepares periodic reports to monitor progress on our strategic goals and operational targets, from both a financial and impact perspective. These are discussed with the Management Board on a monthly, quarterly and annual basis. Other relevant impact- and ESG-related developments can be brought to the Management Board’s or ISCO's attention when deemed necessary.

Additionally, FMO is a signatory to the Operating Principles for Impact Management since 2019.