Principles for responsible banking

Principle 1: Alignment

We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks.

Business model

FMO invests in over 80 countries. We provide finance, blend and mobilize finance, actively promote impact, ESG principles and the generation of value and (help others to) innovate. For further insights into our business model, we invite you to explore 'Our Value Creation Model' chapter, as well as the accompanying World Map visualization, which provides additional details on our portfolio composition.

Strategy alignment

In 2022, we launched our updated Strategy 2030, emphasizing our commitment to contribute to the Sustainable Development Goals (SDGs). Our contribution focuses specifically on SDGs 8 (Decent Work and Economic Growth), 10 (Reduced Inequalities), and 13 (Climate Action), recognizing these as the areas where we believe we can make the most significant difference. While our efforts primarily target these three goals, our activities also have a positive impact on the other SDGs, given their interlinked nature.

Following the launch of our updated strategy, we also published our Climate Action Plan, a comprehensive roadmap detailing our initiatives until 2030 to achieve our SDG 13 objectives. This plan underscores our unwavering commitment to ambitious climate action. At the portfolio level, we are committed to reaching a 'net zero' portfolio by 2050. Moreover, we aim to align all new investments with the mitigation and resilience goals of the Paris Agreement1 (country level) as well as ensuring alignment with a 1.5°C pathway for both transactions and our existing portfolio. This entails increased climate investments and supporting our customers in aligning with the Paris Agreement goals. Formulated as part of our obligations under the Climate Commitment of the Dutch Financial Sector, the plan further elaborates on our Strategy 2030. For more information about our updated strategy and approach toward our climate commitments, please refer to chapters 'Our strategy' and 'Performance against our strategy'. 

Principle 2: Impact and Target Setting

We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities, products and services. To this end, we will set and publish targets where we can have the most significant impacts.

Impact Analysis

Scope: In 2023, we conducted an impact materiality assessment to identify our most significant impact areas, validate our strategic choices, and pinpoint emerging topics with potential impacts on our organization. Our materiality approach aligned with the GRI Standards, which focus on an organization's actual and potential, positive and negative impacts on people and the environment. Our assessment covered all business areas, products, and services across our value chain. For a full overview of the process we followed to identify our impacts, please refer to chapter 'Materiality assessment and stakeholder engagement'. 

Portfolio composition: During the materiality assessment, we considered the regions and sectors in which we operate, covering our entire portfolio. This provided the necessary context to properly identify and assess our impacts on people and the environment and determine the areas where our impacts are most significant. Explore our portfolio composition further in 'Our value creation model' chapter and the World Map visual showing FMO's total committed portfolio.

Context: Since 1970, we have invested in emerging markets and developing economies that are often characterized by fragile governments, limited environmental and social regulation, and high contextual, environmental and human rights risks. Our customers operate in volatile markets significantly impacted by macroeconomic trends like rising commodity prices and currency fluctuations. Amid economic and humanitarian crises, evolving technology, and increasing regulatory pressures, FMO's environment is becoming more complex. These factors informed our impact materiality assessment, which included a review of our sustainability context and engagement with key stakeholder groups to ensure a comprehensive analysis. 

The impact materiality assessment conducted in 2023 identified 14 sustainability topics representing areas where FMO has or could potentially generate significant positive or negative impacts. Among these topics, reduced inequalities and climate change were prioritized for target setting. For more information, please refer to chapters  'External environment', 'Performance against our strategy', and 'Materiality assessment and stakeholder engagement', as well as the Indexes section of the 2023 annual report.

Performance measurement: The impact materiality assessment indicates that Energy and Agribusiness, Food, and Water are the sectors with the strongest actual positive or negative impacts on climate change. FMO's financing of energy generation projects, renewable energy initiatives, energy efficiency, and smart agriculture practices contribute positively to improving access to energy, reducing carbon emissions, and supporting alignment with the Paris Agreement. Although no material negative impacts were identified during the assessment, notable relevant potential negative impacts included investments in conventional energy projects due to limited renewable alternatives and prioritizing engagement over exclusion in projects with possible environmental impacts, which may delay decarbonization efforts, potentially leading to short-term negative impacts on climate change. 

In addressing inequalities, the assessment highlights the Financial Institutions sector as having the most significant impact. FMO's investment activities target underserved or marginalized groups such as women, youth, rural populations, disabled individuals, and immigrants, filling gaps in financial services where the commercial banking sector is lacking (e.g., energy transition projects). This approach fosters positive impacts in reducing inequalities within and between countries. Similar to the topic of climate change, there were no material negative impacts identified related to the reduced inequalities topic. However, relevant considerations included FMO’s microfinance initiatives for financial inclusion which may unintentionally lead to over-indebtedness and the need for FMO to prevent investments in Fragile and Conflict-Affected States that could lead to exacerbating conflict fault-lines or inequalities.

We manage (negative) environmental and social impacts, encompassing SDG-related topics, through our ESG risk management activities. Our approach consists of the continuous identification, assessment, and mitigation of such risks and includes also the systematic monitoring of contractually agreed action items. We require customers to assess investment-related risks and adhere to industry standards such as the IFC Performance Standards and other relevant additional standards as defined in our Sustainability Policy Universe. Additionally, stakeholder and community engagement is a fundamental principle outlined in the IFC Performance Standards. This entails active involvement with stakeholders and local communities throughout the project lifecycle to address concerns, incorporate diverse perspectives into decision-making, and mitigate any adverse impacts.

To mitigate risks related to over-indebtedness (as identified in the impact materiality assessment), FMO has integrated the Client Protection Principles (CPPs) into its core sustainability and risk management policies, ensuring responsible lending practices to reduce reputational and credit risk. FMO assesses all financial institutions, non-banking financial institutions, and corporates providing finance to natural persons or micro-enterprises against these principles, utilizing tools aligned with CPP standards. In addressing impacts associated with investments in Fragile and Conflict-Affected States, we conduct contextual risk analyses as part of our ESG risk management activities.

We use several tools to track the ESG performance of our investments. We set an annual ESG performance target, agree multi-year environmental and social action plans (ESAPs) or corporate governance action plans (CGAPs) with our customers, monitor ESG performance gaps in our portfolio and maintain a serious incident register. In addition, we have implemented an Independent Complaints Mechanism (ICM) that allows external parties to file a complaint, including on ESG aspects, concerning investments or projects financed by FMO. Results are disclosed in the 'Performance against our strategy chapter. 

For more information on our impact materiality assessment please refer to the chapter 'Materiality assessment and stakeholder engagement'. For further details on how ESG risks are integrated into FMO’s overall risk governance and risk management approach, refer to chapters 'Our investment process' and ‘Risk management’.

Self-assessment summary

Target Setting

Alignment:  FMO is committed to aligning with key national and international sustainability frameworks to achieve its vision of a world in which, by 2050, more than 9 billion people live well and within planetary boundaries. Central to this commitment is the Sustainability Policy, supported by a comprehensive set of Position Statements, together comprising the Sustainability Policy Universe. These documents guide FMO's activities and ensure adherence to standards such as the UN Guiding Principles on Business and Human Rights and the application of the IFC Performance Standards. Specific KPIs and targets across our priority SDGs (8, 10 and 13) and connected to our strategic ambitions are currently under development and expected to be introduced in 2024. 

Our Sustainability Policy Universe applies across FMO's operations, including new investments and organizational activities, reflecting our dedication to responsible business practices. Clear ambitions drive our efforts, including a goal to achieve a €10 billion investment portfolio in each SDG 10 (Reduced Inequalities) and SDG 13 (Climate Action) by 2030. More information is available in chapter 'Our investment process' and FMO's Sustainability Policy.

Baseline: The baseline year for the selected indicators is 2022, coinciding with the introduction of FMO's Strategy 2030, when the two indicators – Green-labelled total committed portfolio (2022: €4.4 billion) and RI-labelled total committed portfolio (2022: €4.5 billion) – were initially introduced. For further details, please refer to the chapter 'Our Strategy' or visit the FMO website for additional information on FMO's 2030 strategy.

Smart targets:  By 2030, our goal is to have an investment portfolio of at least €10 billion in both our reduced inequality-labelled portfolio (SDG 10) and our green-labelled portfolio (SDG 13). To steer investments contributing to these goals and measure our impact, we utilize two distinct labels: 'Green' and 'Reducing Inequalities'. These labels, along with their principles and criteria, help identify opportunities aligned with SDG 10 and SDG 13 and set specific targets on contributions to these two SDGs. While these labels provide a valuable framework, investments may generate both financial and non-financial impacts beyond the scope of these labels, covered through Impact Indicators in the Financial Proposal. Our Green and Reducing Inequalities targets, published in the annual report (see Connectivity Table), undergo external assurance (with the Green-labelled new investments being subject to reasonable assurance), ensuring transparency and accountability through a formal approval procedure based on predefined principles and criteria. For more information, please refer to the chapter 'Performance against our strategy'. 

Over the course of 2023, as part of our Impact Management Framework Review Project, we updated RI and Green labels to align with current market standards like 2X and updated MDB Common Principles. The RI label continues to target reducing inequalities within and between countries, introducing new categories like access to food and gender-inclusive companies in line with 2X standards. The Green label now explicitly recognizes six environmental objectives and has expanded client categories to include climate adaptation and biodiversity conservation. Additional green activities have been included by sector, such as Green Hydrogen and Electric Vehicles. The updated labels were introduced at the start of 2024 and we are currently implementing them.

Action plan: 

Reduced inequalities | To reduce inequalities, we pursue three ambitions. First, we contribute toward improved access to better basic goods and services and income generating opportunities for those in the bottom 40 percent of the income distribution. Second, we work towards advancing gender equality through increased gender-lens investments. Third, we invest in least developed countries (LDCs) and are developing a proof of concept for successfully investing in fragile states.

Climate change | As part of our 2030 strategy, we outlined four core goals we aim to achieve. First, to have acted upon our commitment to reach a net zero portfolio by 2050. Second, to support customers’ increased alignment with the Paris Agreement goals and increase our climate change mitigating investments. Third, to strengthen our customers’ resilience to climate change and increase our solutions for adaptation and resilience. Fourth, to increase the volume of investments contributing to biodiversity preservation.

As part of our obligation under the Climate Commitment of the Dutch Financial Sector, FMO published its first Climate Action Plan in 2022. This aligns with our updated 2030 strategy and provides a holistic framework for action that contributes towards our SDG 13 objectives. In the Climate Action Plan, we outline our commitments, including to reach ‘net zero’ at the portfolio level by 2050, align all new investments with the mitigation and resilience goals of the Paris Agreement at the country level, and align both new transactions and our portfolio with a 1.5°C pathway.

ESG | Through our ESG activities, we aim to generate positive impacts while mitigating negative impacts, especially on local communities. We employ robust Environmental, Social, and Governance (ESG) practices, to promote responsible decision-making across risk, return, and impact. Our strategy prioritizes ESG risk management, and we continuously assess and strive to improve the ESG performance of our investments to create meaningful impact.

To learn more about our plans to realize our ambitions in these strategic areas, please to refer to the chapter 'Performance against our strategy', which includes sector narratives outlining the specific actions we intend to undertake within each strategic sector, and FMO’s Climate Action Plan.

Self-assessment summary

Target implementation and monitoring

Progress on reducing inequalities:  In 2023, FMO invested €1.1 billion in reducing inequalities (2022: €810 million), representing 42 percent of our total new investment volume (2022: 33 percent). Total volume of RI-labelled new investments in 2023 increased significantly compared to 2022 (+41%). Investments directed both to least developed countries and inclusive businesses saw an increase in volume.

Despite a rise in RI investments, the total portfolio decreased from €4.5 billion to €4.3 billion by the end of 2023. This decline was mainly due to lower-than-anticipated volumes in the energy sector in least developed countries. In 2023, our RI-labelled portfolio accounted for 33% of the total committed portfolio, slightly down from 34% in 2022.

Progress on climate action: In 2023, our investments in Green projects totaled €1.1 billion (compared to €1 billion in 2022), constituting 40 percent of our overall new investments. A significant portion of our Green-labelled new investments was directed towards renewable energy projects (including wind, solar, and hydro), green credit lines, and agriculture.

In comparison to the previous year, the Green-labelled total committed portfolio experienced a seven percent increase, growing from €4.4 billion to €4.7 billion by the end of 2023. This now represents a 36 percent share of the total committed portfolio.

For more information, please refer to the chapter 'Performance against our strategy'.

Principle 3: Clients and Customers

We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.

Client engagement

FMO has established a robust policy and engagement process with customers to promote sustainable practices. Our environmental, social, and governance (ESG) engagement aims to create opportunities for positive impact across the Sustainable Development Goals (SDGs) while mitigating potential negative impacts of our investments.

We have adopted the IFC Performance Standards (2012) as our operating standard and launched the Sustainability Policy Universe in 2016, a framework of documents and tools that guides us around environmental and social (E&S) impact management and in improving the corporate governance of our customers. This policy framework is complemented by position statements on various issues, such as human rights, land governance, and fossil fuels. We are further guided by international standards such as the United Nations Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises. The SPU will be reviewed in 2024 for updates and additional position statements as necessary.

Throughout the investment process, particularly during due diligence, we conduct a thorough ESG assessment on our potential customers. This process enables us to identify key ESG risks, assess the customer’s quality of risk management and mitigation measures, and inform ongoing monitoring and engagement efforts, with dedicated ESG specialists engaging with high-risk investments.

Our policy commitments undergo both targeted and public consultation during development and receive formal approval from the Management Board. They are readily accessible on our website, underscoring our commitment to transparency and responsible corporate conduct. For further insights, please consult the chapters 'Our investment process' and 'Performance against our strategy' in our annual report.

Business opportunities

Below is a select list of products FMO has developed aimed at accelerating FMO’s contributions toward FMO’s strategic objectives and the three key SDGs where we focus our contribution.

SDG Loan Fund: Publicly announced and activated in late 2023, the US$ 1.1 billion SDG Loan Fund1 is the latest in FMO IM’s portfolio. Commitments to the fund, including those from Allianz and Skandia, are enabled by the first loss investment from FMO and the unfunded guarantee from John D. and Catherine T. MacArthur Foundation. Together, these credit enhancements mobilize institutional investors in emerging and frontier markets. This enables a mobilization ratio of 1:9, where US$ 1 of catalytic capital from FMO mobilizes US$ 9 of private sector capital. Allianz Global Investors manages the fund and FMO IM manages the loan portfolio. The capital of the fund will be invested as participations in FMO loans across FMO’s focus sectors. Once fully invested, the fund expects to support close to 60,000 jobs and to avoid approximately 450,000 tCO2 eq per annum. The fund has participated in the first 11 loans at a committed portfolio of US$ 102 million. Around 37 percent of the committed portfolio had a Green label and 48 percent had an RI label.

NASIRA and FMO's Ventures Program: NASIRA and FMO Ventures Program received approval for three new proposals totalling almost €500 million. This is a significant part of the available EFSD+ funding and makes us the largest DFI receiver. 

Funds managed on behalf of the Dutch government: The Dutch government also granted more resources to the funds we manage on its behalf: DFCD received a €40 million top-up, Access to Energy Fund €40 million and MASSIF €69 million, plus €22 million specifically allocated to market creation. 

FMO Green Bond: In November, FMO issued a US$500 million 5-year green bond, supported by 51 investors participating in the transaction. 

For more information, please refer to the features 'Commercial mobilization' and 'Public funding'. 

Principle 4: Stakeholders

We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.

Stakeholder identification and consultation

We engage with a broad spectrum of stakeholders, including employees, customers, the Dutch government, peers, public investment partners, investors, shareholders, regulators/supervisors, NGOs/civil society, and think tanks/academia. Our stakeholder engagement involves proactive collaboration to form partnerships, align approaches, and exchange insights. 

For example, we collect stakeholder input during our annual materiality assessment process, administer customer satisfaction surveys to understand how customers perceive our products and identify ways to better support them in carrying out their business activities, and regularly conduct employee surveys to gauge staff satisfaction and engagement levels. Additionally, we maintain regular dialogue with peers like MDBs and EDFI. This engagement emphasizes knowledge-sharing and efforts to harmonize practices.

More information about our engagement with stakeholders is available in chapters 'Performance against our strategy' and 'Materiality assessment and stakeholder engagement'.

Principle 5: Governance & Culture

We will implement our commitment to these Principles through effective governance and a culture of responsible banking. 

Governance Structure for Implementation of the Principles

FMO's Supervisory Board (SB), assisted by the SB Impact Committee, oversees the quality and integrity of FMO’s statements regarding development impact. The Committee further aids the Supervisory Board in decision-making on impact and ESG strategy, policies, and targets.

The day-to-day operational management rests with the Management Board, supported by the Impact and Sustainability Committee (ISCO), chaired by FMO’s co-CIO. The ISCO plays a pivotal role in advancing the impact and sustainability agenda through improved decision-making, coordinating implementation of sustainability-related topics, and interpreting external developments. Dedicated teams within FMO are accountable for carrying out specific actions.

Principles for Responsible Banking (PRB) form part of the Sustainability Policy Universe. The Sustainability Policy Universe undergoes integrated policy reviews and further develops over time through additional position statements, all requiring approval from ISCO. Our impact targets are part of FMO's core strategic targets are and corporate reporting and monitoring to strategy 2030 implementation and, as such, are subject to MB steering.

FMO’s remuneration policies are designed in adherence to the principle of attaching equal importance to investment and risk functions. This is achieved by maintaining, similar salary scales, and avoiding bonus structures that may incentivize excessive risk-taking. As a purpose-driven organization, FMO does not offer variable remuneration, such as bonuses, to Identified Staff (senior management and individuals whose professional activities significantly impact FMO's risk profile). Instead, it values collective efforts, innovation, knowledge sharing, and collaboration, which are less suited to individual performance bonuses.

For more information, please consult the chapters 'Report of the Supervisory Board' and 'Corporate Governance'.

Promoting a culture of responsible banking

FMO has implemented several polices and developed various training programs and modules to cultivate a culture of responsible banking among its employees.

Policies: FMO's Code of Conduct, which serves as a comprehensive framework, plays a pivotal role in promoting the well-being of stakeholders including clients, employees, shareholders, partners, and communities where FMO operates. FMO prioritizes integrity in all aspects, reflected in policies like KYC Framework, the Anti-Bribery & Corruption Policy, the Gifts, Entertainment & Hospitality Policy, and the Diversity and Inclusion Statement.

Training: FMO offers training programs, some of which are tailored to the employee’s role. New hires undergo mandatory onboarding courses on topics like impact, compliance, human rights, and anti-bribery and corruption. All staff must also complete KYC training and additional sessions on the FEC program and remediation.

Culture: In 2023, launched the Values in Action program. Values in Action at FMO represent our commitment to embodying our ambitious 2030 strategy. To fully realize our impact, we need values and behaviors that not only inform our decisions but also drive our actions. Cultivating a culture aligned with our strategy is paramount to its success. When we translate our values into tangible behaviors, we collectively contribute to fostering a more productive and fulfilling workplace environment at FMO. This environment is characterized by alignment and motivation toward shared objectives, where each individual has the opportunity to thrive and develop professionally. Our FMO values serve as the foundation of our organizational culture, reflecting our beliefs and shaping our interactions.

For more information, please refer to chapters 'Our investment process' and 'Performance against our strategy'.

Policies and due diligence processes

FMO is committed to managing environmental and social risks within its portfolio. At the core of our sustainability efforts is the Sustainability Policy Universe, a framework of documents and tools that guides us around environmental and social (E&S) impact management and in improving the corporate governance of our customers. Our commitment to sustainability is underscored by our adherence to key international standards and frameworks, notably the adoption of the IFC Performance Standards as our operating standard, ensuring that investments contribute to positive social and environmental outcomes while minimizing negative impacts. Throughout the investment process, we conduct in-depth project assessments, documenting results in finance proposals that inform our investment decisions. For high-risk ESG investments, we conduct site visits and stakeholder engagement, with further ESG requirements defined and negotiated as needed. This rigorous approach underscores FMO's dedication to sustainable development and responsible investing.

Know Your Customer (KYC): FMO plays a vital role in preventing financial economic crime (FEC) and safeguarding the integrity of the financial system. We conduct thorough Know Your Customer (KYC) checks, and continuously assess customer integrity risk. Our robust FEC framework aligns with national and international standards despite document verification challenges in some countries. We regularly review our policies and procedures to ensure compliance with laws and regulations, allowing investment teams to conduct comprehensive due diligence. For more information, please refer to chapter 'Our investment process'.

Self-assessment summary

Principle 6: Transparency & Accountability

We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.

Assurance

This PRB disclosure has undergone limited assurance by an independent assurer for the sections that require assurance. Please refer to the Independent Auditor's and Assurance Report for more information. 

Reporting on other frameworks

FMO prepares its Annual Report in accordance with the 2021 GRI Standards. Since 2019, we have also followed the TCFD Recommendations, issuing a standalone TCFD report. For additional information, please refer to chapter 'How we report'.

Outlook

Throughout 2024, we remain committed to executing our Strategy 2030 and Climate Action Plan. This includes integrating climate risk into our operations and implementing improvements to our Impact Management Framework. Our ongoing efforts are dedicated to achieving our climate and inequality reduction ambitions.

As a regulated bank, FMO must adeptly respond to evolving regulatory requirements and stakeholder expectations. In 2024, our focus continues on adapting to regulatory changes, such as the EU Sustainable Finance regulation, which aligns with core PRB principles, including the CSRD/ESRS. 

More information is available in chapter '2024 Outlook', FMO’s 2022 Climate Action Plan and the 2023 TCFD Report.