Letter from the Management Board

From left to right: Huib-Jan de Ruijter, Fatoumata Bouaré, Peter Maila, Michael Jongeneel, Franca Vossen

Staying the course 

In 2023, the volatile global economic and geo-political circumstances were aggravated by more extreme weather conditions, food crises, the collapse of several major banks, the ongoing war in Ukraine, the war in Gaza, and Sahel coups. All with direct and prolonged, devastating effects on the well-being of entire communities, in particular in FMO’s geographies. This instability is often worsened by adverse financial factors in many emerging markets such as higher interest rates, high inflation, and increased sovereign debt.

Within this context, FMO's 50+ year mission becomes more relevant by the day: enabling entrepreneurs to increase inclusive and sustainable prosperity. Over the next decade, the World Bank estimates one billion young people — a majority living in emerging markets — will try to enter the job market. If they won’t be able to find decent jobs, this will leave millions without hope for a sustainable future. Our investments support jobs in local markets – around 990 thousand direct and indirect jobs in 2023 – and enhance access to energy, food and finance: crucial factors in breaking the downward cycle of poverty and migration.

Dutch companies can also spark new business opportunities in emerging markets, contributing to the SDGs by an often innovative way of working. We support them for instance through Invest International - as a 49 percent shareholder, and also by improving the investment ecosystem in promising markets, like Ethiopia. There, in 2023, FMO was the first investor in the financial sector, opening doors for other financiers and improving the financing circumstances for Dutch businesses.

To create more local investment opportunities, FMO is also fostering the new generation of entrepreneurs in emerging markets. We do this by building a new market creation pillar within FMO. Our aim is to help upcoming sustainable businesses grow to the level where they can absorb regular funding, first from us and ultimately from institutional investors. This will allow them to contribute to job creation, local prosperity and climate action on a larger scale. By providing technical assistance and investment partners, we will support the development of these currently unbankable, yet potentially impactful opportunities, into bankable and scalable businesses, starting in Africa. 

Maximizing our impact towards the SDGs is the foundation of FMO’s strategy towards 2030. This past year marks the first full year dedicated to implementing and working towards the 2030 goals. Staying the course, we had similar priorities as in 2022: growing impactful business, ensuring FMO’s foundations are solid, and organizational development.

Growing impactful business

FMO invests in three sectors, namely (1) Agribusiness, Food and Water, (2) Energy, and (3) Financial Institutions. This allows us to combine climate action with socio-economic goals, focusing our impact on SDG 8 (Decent Work and Economic Growth), SDG 10 (Reduced Inequality) and SDG 13 (Climate Action).

In 2023, we supported our customers with approximately €2.7 billion in total new investments (2022: €2.4 billion) of which €1.9 billion was made through FMO, €258 million through public funds, and €528 million through direct mobilized funds (2022: €1.8 billion, €153 million, and €457 million respectively). At €13.2 billion, our total committed portfolio remained roughly the same as last year due to the level of loan repayments and exits in our portfolio as well as the negative effects of the EUR/USD exchange rate. Some of the highlights per sector are:

  • Agribusiness, Food and Water – rolling out our local for local food agenda (Limbomar and Limbopack in Ecuador) and green financing agenda (Merensky Timber in South Africa). 

  • Energy – Expanding into areas beyond renewable energy generation with battery storage (Walo Storage in Senegal) and commercial and industrial/rooftop solar solutions (GreenYellow Smart Solutions Vietnam). 

  • Financial Institutions – onboarding more tech-enabled players (Cash Plus in Morocco) and continuing to roll out our risk-sharing solutions with traditional banks (Araratbank in Armenia). 

To steer our portfolio, we label investments that directly contribute to Reduced Inequalities (SDG 10) and Climate Action (SDG 13). With respect to reducing inequalities (RI), our overall RI-labelled total committed portfolio amounted to €4.3 billion, achieving €1,140 million in RI-labelled total new investments in 2023 (2022: €810 million), a strong increase despite challenging global circumstances. Contributing to climate action, our Green-labelled total committed portfolio amounted to €4.7 billion. This was, among others, driven by further growth in Green-labelled total new investments which came in at €1,091 million (2022: €1,003 million).

We were grateful to see the recognition at and after COP28 of the SDG Loan Fund, an innovation widely praised as a leading example of the mobilization of private capital. The fund unlocks around US$1 billion institutional capital towards the SDGs through a unique blended finance cooperation, set-up by Allianz, MacArthur Foundation, and FMO. We hope and expect other institutional investors, DFIs, and foundations to replicate this initiative, contributing to impact that would otherwise not be possible.

Following the launch of our Climate Action Plan, in 2023 we rolled out the required actions. This included work streams dedicated to further developing our Paris alignment approach, our data strategy, KPIs for our climate strategy and preparing to operationalize our climate risk approach. We made strong progress on all work streams and expect most to be ready for operationalization in early 2025.

Strengthening partnerships is an essential part of our strategy. In recognition of the success of two previous European Commission guarantee programs (NASIRA and FMO Ventures Program), we have received approval for three new proposals that are currently in the contracting phase. The Dutch government also strengthened its support 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.

In October 2023, we organized the Future of Finance event, with UN Secretary-General's Special Advocate for Inclusive Finance for Development Queen Máxima and Klaas Knot, Chairman of the Financial Stability Board, as keynote speakers. Following the success of this event, we hosted the Future of Energy in Amsterdam in February 2024. Following the pandemic, we highly value these opportunities to meet up with clients and partners in person and to exchange views and best practices firsthand.

Ensuring a solid foundation

Over the year 2023, our net profit amounted to €65 million (2022: €1 million). Looking at our regular income, based primarily on dividend and interest payments, we were well in balance with our operating expenses. Loan provisions were materially lower than last year, then largely impacted by exposures in Ukraine, Sri Lanka, and Myanmar. The overall trend in the EUR/USD exchange rate had a negative effect on our net profit due to foreign exchange losses recorded on our investment portfolios. The non-performing exposures ratio was 9.8 percent (2022: 11.9 percent). The Common Equity Tier 1 (CET-1) ratio was 22.0 percent (2022: 23.8 percent), with the movement driven primarily by regulatory changes impacting the calculation capital requirements. Combined with our impact results, these are positive numbers in a highly volatile environment.

Last year, the agreement between FMO and the Dutch State, which formalizes our mandate, was renewed for the first time since 2009. The key principles of this agreement remain the same, just like FMO’s AAA rating, mirroring the ratings of the Dutch State.

To ensure FMO continues to comply with regulations, several work streams and projects are currently underway. For instance, we are in the process of implementing the Corporate Sustainability Reporting Directive (CSRD) and we intend to align with the European Central Bank's expectations for climate-related and environmental risks in 2024. We will be required to publish our first report in accordance with the CSRD and Pillar III in 2025.

In August of 2023 we reported that, as a result of late notifications of unusual transactions to the Financial Intelligence Unit (FIU) in 2021 and 2022, DNB decided on enforcement measures. DNB is currently re-assessing these measures upon request of FMO (by means of objection). FMO’s related Financial Economic Crime (FEC) framework enhancement program – which involved a full KYC file remediation – was finalized at the end of 2021. During 2023, FMO focused on continuous improvement of its FEC framework, through (amongst others) periodic review of policies and procedures, training, and monitoring of performance.

Organizational development

To increase our impact and meet the expectations of our stakeholders, we continued to strengthen and streamline our organization. The recruitment of new colleagues progressed well despite a challenging labor market, and we prioritized employee wellbeing and engagement. We are implementing an agile way of working in several domains. We also launched our values and updated behaviors, which marks the beginning of a multi-year program to further empower our colleagues to maximize impact.

The classification of FMO as a ‘World Class Workplace’ by Effectory, which conducted our bi-annual employee engagement survey, reflects the improved engagement levels and work satisfaction. Our employees are proud of our vision and goals, as well as the atmosphere and trust within their team. Efficiency remains the most important area for improvement and is high on our agenda. We would like to take this opportunity to thank our staff for their dedication to our mission, their commitment, and all the impactful work they have done in 2023.

Looking ahead

Staying the course, in 2024 we will focus on the three same priorities as in 2023, continuing our work towards our 2030 goals. With regard to growing impactful business, we aim to further increase new investments in Reduced Inequalities and Green. We will take the next steps in market creation, supporting the new generation of entrepreneurs.

With the fragile global economic and political situation in some of our markets, we do realize our financial result can be volatile and further growth to maximize our impact will be challenging. But given the immense climate challenge that lies ahead and the huge investments that are needed to support job creation and overall economic development in emerging markets, we see it as our role to be countercyclical and focus on the long term. We invest when others shy away, always with our mission in mind: enabling entrepreneurs to increase inclusive and sustainable prosperity.

Fatoumata Bouaré, Chief Finance & Operations Officer
Franca Vossen, Chief Risk Officer
Huib-Jan de Ruijter, Co-Chief Investment Officer
Michael Jongeneel, Chief Executive Officer
Peter Maila, Co-Chief Investment Officer

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