Our achievements in 2023

To achieve our strategic goals and objectives, we defined ambitious targets and plans for 2023. The 2023 results as well as the key drivers are further explained in this chapter.

Sustainable economic growth and decent jobs

SDG 8 calls for promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. Private business, investment and innovation are major drivers of productivity, inclusive economic growth and job creation.

Creating and safeguarding jobs is crucial for sustainable development, as employment provides a path out of poverty. According to World Bank estimates, 600 million jobs will be needed by 2030 to absorb the growing global workforce, yet economic growth has not kept pace in providing employment opportunities for all. Further to that, the quality of jobs is often lagging.

As such, FMO pursues two ambitions related to SDG 8 as part of its Strategy 2030: growing the number of jobs supported and increasing the decency and quality of jobs at our customers. To realize these objectives, we help our customers to grow in a responsible manner. Through commitments anchored in our Sustainability Policy, we support our customers in meeting international standards on decent work and resource efficiency.

Sustainable economic growth

Economic growth must be coupled with social and environmental considerations so that it is sustainable in the long run. We drive impact, both financial and non-financial, towards sustainable economic growth through making responsible investments. We target specific underserved markets, including micro, small and medium-sized enterprises (MSMEs).

Responsible investments

We invest with the goal of having broader economic, social, environmental and governance impact in the markets in which we invest. We work with general investment criteria to ensure that our investment decisions and processes contribute to our objectives and are in line with our mandate. Our results are expressed in terms of total committed portfolio and total new investments.19

In 2023, we invested a total of €2.7 billion (2022: €2.4 billion) of which €1.9 billion was made through FMO's own funds (2022: €1.8 billion), €258 million was made through public funds (2022: €153 million) and €528 million was made through direct mobilized funds (2022: €457 million).

Our total committed portfolio amounted to €13.2 billion (2022: €13.2 billion), of which €9.1 billion was invested through FMO’s own books (2022: €8.9 billion), €1.4 billion through public funds (2022: €1.4 billion) and €2.7 billion through direct mobilized funds (2022: €2.9 billion).

Despite facing global macroeconomic challenges in 2023, we achieved an 11 percent growth in our total new investment volume compared to 2022. This was the result of significant business development efforts in 2022, rebounding from the pandemic-induced slowdown. Production volumes, however, fell short of the €3.1 billion target resulting from high interest rates and inflation, putting downward pressure on demand for financing. Production volumes were insufficient to offset loan repayments and exits in our portfolio as well as the negative effects of the EUR/USD exchange rate. The overall portfolio, therefore, remained at 2022 levels and fell short of our target of €14 billion.

Access to finance for MSMEs

FMO targets MSMEs, including those owned by women, youth, and other marginalized populations, because they are financially underserved and typically provide more jobs than larger corporates relative to the capital invested. We want to ensure that these beneficiaries are able to grow their businesses sustainably and are not worse off by taking credit. We require micro-enterprise customers to adhere to the Client Protection Principles (CPPs), which set the minimum standards that end-customers should expect when doing business with a financial service provider. The CPPs focus on the prevention of over-indebtedness, transparency, and responsible pricing.

The number of MSME loans represents the number of loans FMO’s customers have provided to MSME customers. In 2023, our customers provided 42 million micro loans (2022: 33 million) and a total of 2.4 million SME loans (2022: 2.6 million). The increase in extended microloans by FMO’s customers is largely driven by new customers entering the portfolio (new investments represent approximately half of the increase) as well as the existing customer base growing their microloan book (the other half). Both developments more than offset the few micro-loan focused customers that exited FMO’s portfolio in 2023. The increase in the microloan book of existing customers is reflective of the generally resilient economic growth that emerging markets were able to realize in 2023 despite the challenging macroeconomic conditions. 

Jobs supported

DFIs like FMO promote the development of the private sector, which is one of the most important providers of jobs in emerging markets and developing economies. The number of jobs supported provides a proxy of the employment impact of investing in the private sector. As businesses survive and grow, their outputs require direct employment and intermediary inputs. This in turn leads to activity among existing and new suppliers, thereby supporting and creating jobs. Some products and services – notably electricity, infrastructure and finance – remove constraints for other businesses, enabling them to succeed and hopefully to expand.

FMO reports on attributed20 jobs supported for both direct and indirect jobs. Direct jobs refer to the number of full-time equivalent (FTE) employees working for the companies or projects we have invested in. Indirect jobs refer to those jobs 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.

Jobs supported per strategic sector (in thousands) 

In 2023, FMO’s total outstanding portfolio resulted in an estimated 990 thousand attributed jobs supported (2022: 910 thousand jobs).21 Of this, 74 percent of jobs supported originated from investments made through our own balance sheet, 13 percent from investments made through public funds, and 13 percent through direct mobilized funds. The majority - 940 thousand – resulted from indirect jobs. The remainder - 50 thousand – resulted from direct jobs. A total of 37 percent of direct jobs supported were held by women.

Compared to 2022, the total number of jobs supported increased by 80 thousand. This is partially the result of the addition of a higher number of jobs affiliated with new customers joining our portfolio compared to those exiting our portfolio, which resulted in an increase of 46 thousand jobs supported. In addition, we also recorded an increase in 34 thousand supported jobs for existing customers in our portfolio.

Supporting customers to improve job quality

Not just the number of jobs supported matters but also the quality of those jobs. We require our customers to respect workers’ rights and to strive towards providing decent working terms and conditions. We uphold IFC Performance Standard 2 and the ILO Declaration on Fundamental Principles and Rights at Work, which focus on labor and working conditions. Through these commitments, we expect our customers to treat workers fairly, provide safe and healthy working conditions, avoid the use of child or forced labor, and identify and remediate risks in their primary supply chains.

Recognizing that we work in regions with weak regulation and in sectors relying heavily on subcontracting, we encourage customers to go beyond standard local practices. This includes proactive risk identification, as well as the enforcement and monitoring of requirements. We promote the quality and inclusiveness of the jobs we help support, for example by removing barriers to the employment of women and vulnerable people. Furthermore, we encourage workers’ personal development by advocating for and co-creating skills development and training.

We also try to facilitate change in working conditions through collaboration. As an investor in solar power, we need to find ways to address the challenges related to the serious human rights allegations of forced labor in the solar supply chain. By working with other DFIs we are seeking to better understand the topic and identify opportunities to jointly exercise leverage to minimize this risk. While the solar supply chain is continuously changing, FMO has developed and continues to develop investment criteria for all new transactions involving solar technology. While not easy, combining efforts will hopefully put pressure on the solar power supply chain and eventually eliminate forced labor. 

Reducing inequality between and within countries

Inequality is detrimental to long-term social and economic development, poverty reduction and people’s sense of fulfilment and self-worth. However, economic growth alone is not sufficient to reduce 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.

We label and steer our investments towards these areas. We work with our customers to increase the income of low-income populations by promoting empowerment, inclusion, and equal opportunities and by supporting financial flows to the countries that need it the most. Through our ESG risk management activities, we identify the risks associated with inequality and try to ensure an inclusive approach in our due diligence.

Investments to reduce inequalities

An investment receives a Reduced Inequalities (RI) label when there is an expected impact towards this objective. This includes investment flows towards LDCs or inclusive businesses that provide basic goods and services for low income and underserved groups (including micro-financial services, financial services to underserved SMEs, as well as last mile delivery of power), or that include smallholder farmers and women in their value chains.

In 2023, FMO invested €1.1 billion towards reducing inequalities (2022: €810 million), representing 42 percent of our total new investment volume. Of this, €822 million was invested from our own books, €155 million from funds made available by public entities and €163 million from direct mobilized funds. We invested €856 million in inclusive businesses that mostly focus on microfinance and micro-financial services, women-owned or women-led SMEs and smallholder farmers. We invested €335 million in companies and projects operating in LDCs such as Tanzania, Senegal and Nepal.

The total volume of RI-labelled total new investments increased by 41 percent compared to 2022. This was the result of improved performance in the AFW and FI sector which managed to close several large transactions in LDCs and inclusive business. Lower than expected volumes in the Energy sector, which suffered from higher interest rates and inflation, however, meant we fell short of our target of €1.2 billion.

Despite the strong growth in total new investments in 2023, our RI-labelled total committed portfolio decreased by three percent from €4.5 billion to €4.3 billion at the end of 2023 compared to 2022. We fell short of our target of €4.9 billion due to high portfolio outflows (including the exit of a large customer in Myanmar), an unfavorable development in the USD/EUR exchange rate and changes in the RI-labelled volumes following the annual monitoring cycle. The current volume of RI-labelled portfolio represents a 33 percent share of the total committed portfolio.

Advancing gender equality

FMO considers gender equality a human right and a means to reaching sustainable growth. That is why we strive to advance gender equality through our gender-lens investments. We seek investments that encourage more women to participate in the economy, support female entrepreneurs, reach women as end-users of goods and services and include women in the labor market. We also aim to protect the rights of women and gender minorities, to understand the gender-specific impact of our investments and to contribute towards equitable access to economic opportunities.

Gender-lens investments

We steer our investments to advance gender equality in two ways. First, we invest in companies that focus on women-owned MSMEs, women as consumers, and businesses that specifically include women in their value chain. This is covered by FMO’s RI label, explained previously.  

Second, we engage with customers to identify investments that are or can become eligible for the 2X Challenge, often providing development contributions to gender action plans and activities. The 2X Challenge, part of the 2X Global Initiative, is a collective commitment of DFIs to mobilize gender lens investment. The initiative developed a framework and criteria for investments that contribute to gender equality, referred to as the 2X Criteria. 

In 2023, we invested €351 million in financing for women-owned or women-led SMEs (2022: €199 million). One of the projects we supported was Mibanco Banco de la Microempresa, the largest MFI bank in Peru. FMO provided a US$50 million loan fully dedicated to supporting women-owned SME businesses.

In 2023, €114 million of new investments qualified for the 2X Challenge. A total of €80 million was on our own books, €17 million from public funds and €17 million from direct mobilized funds.

Supporting customers to increase inclusivity

Through our ESG management activities we identify the risk of inequality and try to ensure inclusion in our potential investments by performing due diligence with a human rights lens. This is further explained in the chapter 'Our investment process'. At the end of 2023, 299 customers in our portfolio went through such an exercise (2022: 293 customers).

Our ESG engagement supports inclusivity by identifying vulnerable groups and seeking ways for our customers to create visibility for them. This can include empowering women in the workplace or in the communities, as well as addressing the rights of indigenous peoples and other vulnerable groups with impaired rights in consultation processes. In addition, our customers can encourage participative engagement through resettlement planning, trainings, or livelihood support programming. We also stimulate benefit sharing and advocate community ownership.

For instance, we identified that an existing customer in West Africa was exclusively hiring people of the same prominent ethnic group and that job sourcing was also done through channels exclusive to this group. The company was also not trying to attract more women, by promoting the company’s vacancies stating the required gender of the potential candidates. While this was understood to be standard local practice, FMO is providing technical assistance to ensure the customer will increase female representation, diversify the workforce in terms of ethnicity and implement inclusive practices for a safe working environment for all. This will be formalized into HR policies and procedures, as well as by diversifying vacancies’ announcements through various channels.

Climate action

Global temperatures are rising and the impact of climate change is evident, with developing countries facing disproportionate impacts. These countries are also part of the solution, and require substantial financing for climate adaptation and mitigation. Biodiversity, affected by human activity and climate change, requires protection to preserve ecosystems. For these reasons, we invest in activities that contribute toward SDG 13.

As part of our Strategy 2030, 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 Strategy 2030 and provides a holistic framework for action that contributes towards our SDG 13 objectives. In the Climate Action Plan, we have set out three key actions: (1) aligning our portfolio and investments with the Paris Agreement goals; (2) increasing climate investments and support to our customers; and (3) active management of our climate action. The following is a summary of some of the key actions FMO has taken or which are ongoing toward these objectives.

Aligning our portfolio and investments with the Paris Agreement

In our Strategy 2030 and Climate Action Plan, we have affirmed our commitment to a net zero portfolio in 2050. Recognizing uncertainties, including evolving climate change impacts and market dynamics, our strategy involves investing in low-emission investments or investments that contribute materially to climate mitigation (climate finance), reducing the emission intensity of our new investments, and increasing investments in carbon removals, primarily forestry. When all carbon equivalent emissions – positive and negative - are aggregated in 2050, our portfolio emissions will be ‘net zero’.

Toward 2030, we have committed to align new investments with the mitigation and resilience goals of the Paris Agreement (country-level). In addition, we have committed to taking an ambitious and well-studied approach, carefully balancing both social and environmental considerations, as well as the need for a just and inclusive transition, and strive to align new transactions and our portfolio with a 1.5°C pathway.

To progress toward these objectives, we set a power generation emission reduction target for 2030, whereby we will decrease our absolute emissions by 50 percent from 2021 (results included in the Energy section). Simultaneously, we exclude certain high-emitting investments in line with our Combined Position Statement on Fossil Fuels.

We are actively working on developing our principles and methodology toward aligning all new investments with country-level mitigation and resilience goals and toward higher alignment ambitions. In addition, we are developing key performance indicators (KPIs) to further steer and underpin our ambition and strategy. While we are already engaging with select customers on climate finance, Paris alignment, and climate governance and risk management through our 'business as usual' and technical assistance programs, we will also be studying how we can do more to support our strategy in the coming years.

Climate finance

Since 2015, we steer our climate financing through our Green label to capture the ex ante potential of our investments. FMO's Green label currently focuses on three components: climate change mitigation, climate change adaptation, and other (environmental) footprint reduction measures.

In 2023, we invested €1.1 billion in renewable energy projects, green credit lines and sustainable agriculture (2022: €1 billion), representing 40 percent of total new investments. Of this, €853 million was invested from FMO's own balance sheet, €86 million from public funds and €152 million from direct mobilized funds.

We increased the volume of Green-labelled total new investments by nine percent. In 2023, we saw strong performance in the AFW sector and green equity investments. In addition, our inaugural forestry project in Brazil marked a promising entry into the market, which is expected to contribute to the future growth of our Forestry portfolio. Despite this, we fell short of our target of €1.4 billion. This shortfall was largely driven by lower green volumes in the EN and FI sectors as a result of challenging market conditions. This is further explained in the energy and financial institutions sector-specific sections.

However, as a result of the overall growth in Green-labelled total new investments, our Green-labelled total committed portfolio increased by seven percent from €4.4 billion to €4.7 billion at the end of 2023 as compared to the year before. This represents a 36 percent share of the total committed portfolio. Due to lower volumes of Green-labelled total new investments than anticipated and the depreciation of the US dollar, we fell short of our target of €4.9 billion.

GHG emissions

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:

• Financed absolute GHG emissions generated through our investments. These give an understanding of our portfolio’s overall emissions and opportunities to reduce them.

• 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.

• Absolute GHG emissions from FMO’s own operations associated with heating and electricity used in our office buildings, as well as staff business travel. These are much smaller than our financed absolute emissions but show our own operational footprint.

Financed absolute GHG emissions

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 its control (e.g., a power plant burning gas). Scope 2 relates to indirect emissions from energy used by an organization (electricity, heat and steam). Scope 3 relates to all other indirect emissions in the value chain related to, for instance, business travel or purchased goods and services.

To report on financed absolute GHG emissions, we follow 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 estimated through economic modelling using the Joint Impact Model (JIM). While we continue to improve our data collection on GHG emissions, it is important to note that such data are not yet readily available in many of our markets. In the meantime, the JIM provides insights into our portfolio and its sources of emissions.

Financed absolute GHG emissions per strategic sector (in ktCO₂e)

In 2023, our outstanding portfolio resulted in an estimated 8,403 ktCO₂e financed absolute GHG emissions (2022: 8,093 ktCO₂e), of which 990 ktCO₂e were scope 1 emissions, 312 ktCO₂e were scope 2 and 7,101 ktCO₂e were scope 3. The scope 3 emissions consist of two main GHG Protocol categories: purchased goods and services (2,186 ktCO₂e) and investments related to emissions in the portfolios of our customers (4,915 ktCO₂e), which are particularly relevant for FIs. Overall, 71 percent of emissions were attributed to our own balance sheet, 13 percent were attributed to funding from public funds and 16 percent to direct mobilized funds.

Our portfolio scope 1 and 2 emissions declined from 1,629 ktCO₂e in 2022 to 1,302 ktCO₂e in 2023 as a result of lower exposure in high-emitting customers, such as fossil fuel power plants as well as more primary emissions data. Scope 3 emissions increased from 6,464 ktCO₂e in 2022 to 7,101 ktCO₂e in 2023 due to, among others, data refinements and better coverage.22 

We do not yet report on emissions removals from, for example, our forestry activities. This is something we will work towards in the future.

Financed avoided GHG emissions

In 2023, our portfolio resulted in an estimated 2,061 ktCO₂e total avoided GHG emissions (2022: 1,735 ktCO₂e). Notably, 84 percent originated from the EN sector, eight percent from AFW and eight percent from diverse sectors. A significant proportion of avoided emissions, specifically 1,310 ktCO₂e, was attributable to our debt and equity portfolios in on-grid renewable power projects.

Absolute GHG emissions from FMO’s own operations

In our Climate Action Plan, we also addressed FMO’s operational emissions. In 2023, the carbon footprint of our own operations amounted to 5.79 ktCO₂e (2022: 3.89 ktCO₂e). Scope 1 emissions amounted to 0.08 ktCO₂e, which came from lease cars used by our employees. Scope 2 emissions amounted to 0.03 ktCO₂e connected to district heating that we obtain for our head office. Scope 2 emissions related to the use of electricity were equal to zero since we purchase electricity from renewable sources.23 Scope 3 emissions amounted to 5.68 ktCO₂e, mainly from staff travel. As explained in our Climate Action Plan, for us to invest responsibly, conduct our business, and strengthen our value-add to our customers around the world, we must travel to meet our customers. As a result, 84 percent of our own emissions resulted from air travel. The easing of COVID-19 measures increased staff travel and office use, which significantly increased our carbon footprint compared to the past three years.24

In our travel policy, FMO employees are encouraged to consider the environment in planning their travel. Travel up to 500km in continental Europe must be done by train or car and all fights shorter than six hours must be economy class. FMO offsets its operational emissions by investing in a mix of different credits, including VCS REDD+ certified forestry credits, VCS Afforestation/Reforestation credits, Gold Standard Household Biogas credits and Puro Biochar credits.25

Supporting customers’ increased alignment with the Paris Agreement goals

Our customers have different circumstances from both a climate mitigation and adaptation and resilience perspectives. We already have a track-record of working with our customers on these aspects through the financing of climate-specific investments, our ESG activities, and our technical assistance. At the same time, we recognize that to meet our own impact goals, we will need to further support our customers in this period of both transition and growing physical climate risk.

Through our ESG activities we engage directly with senior management and board members of many of our customers to raise awareness and increase their understanding of the implications of climate on their businesses. We encourage active preparation for the future, both at the investment and sectoral levels.

Our assessments of environmental and biodiversity risks include requirements for impact mitigation and minimization of habitat or ecosystem degradation. Implementing protection measures for biodiversity can enhance climate change resilience.

We are also actively collaborating with many of our investees on sustainable initiatives. An example involves an existing aquaculture customer striving to decarbonize and accelerate the transition from fossils fuels to renewable energy in its business. FMO’s team is supporting the customer to become a sector leader in GHG emissions reduction, through the production of low-footprint animal protein. The company is also implementing climate-smart aquaculture practices that combine technology and IT for efficient use of resources.

Through the technical assistance facilities associated with the funds FMO receives from public entities, for example the MFF and DFCD, we support our customers with tailored technical assistance for climate mitigation and adaptation and resilience solutions.

Going forward, as we develop our further Paris alignment requirements, we will continue to improve the ways we support our customers in order to have the real-world impact we seek to stimulate. Toward this, in 2023, we established both the Sustainable Finance Advisory and the Sustainability Standards Integration teams to execute on this goal.

Development contributions

We provide development contributions through our Technical Assistance program to contribute to impact, create value and reduce risk for our (prospective) customers as well as support business and ecosystem development efforts. Development contributions are financed by FMO, the Dutch Government, the European Commission, the UK Government, and the U.S. Development Finance Corporation.

In 2023, we provided €14 million in development contributions (2022: €16 million). In 2022, we reported an overspend under the MFF program due to a US$2.5 million repayable development contribution. In 2023, we report an underspend, mostly for DFC and NASIRA, due to longer lead times related to more stringent procurement processes that apply to these funds.

Customer level support

Throughout 2023, our technical assistance activities focused primarily on supporting tailor-made programs for our customers that are aligned with their strategic objectives.

For example, we have designed technical assistance frameworks that establish formal partnerships with specialized consultants. These frameworks are intended to provide customers with expert support in identifying and addressing gaps in their sustainability and impact focused practices. This included offering tailor-made advice on gender inclusion, green finance, and consumer protection. 

We also continued to support customer growth and performance and to help customers deliver on their strategy. For example, we supported a company in Kenya to test and scale new electric motorbikes and design a facility to re-purchase lithium-ion batteries, thereby reducing e-waste. 

Furthermore, in cooperation with DFC, we have set up the Digital Transformation TA Facility to enable financial intermediaries to use technology to improve their processes, culture, and customer experience, by adapting to evolving market needs thereby driving financial inclusion.   

Business development and ecosystem building

Business development relates to short to medium-term efforts that support FMO's and other DFI investment pipelines with bankable projects. Ecosystem building refers to long-term strategic interventions with scale potential that address market deficiencies and risks in relevant sectors and geographies for FMO. Both are key to FMO's market creation strategy. 

Market creation interventions target identified barriers to bankability, and are used to develop bankable projects and enterprises. With the approval of the MASSIF market creation top-up subsidy of €22 million in 2023, we will ramp up our efforts in this space over the coming years.

ESG performance

FMO uses several tools to track ESG performance. 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, FMO has an Independent Complaints Mechanism (ICM) that allows external parties to file a complaint, including on ESG aspects, concerning investments or projects financed by FMO. For more information on how ESG risks are integrated into FMO’s overall risk governance and risk management approach, refer to the ‘Risk management’ section.

Environmental, social, and corporate governance action plans 

Given the high degree of variation in ESG regulations and practices in our markets, FMO accepts that the initial ESG performance of a customer may not meet international standards. However, we do expect improvement over time in line with agreed action plans, reflecting FMO’s commitment to ESG additionality. In the case of customers with contractually agreed ESAPs and/or CGAPs, we monitor progress towards implementation to ensure that our investments comply with our policies and standards within a reasonable timeframe. Most customers show good progress and are receptive to FMO’s ESG guidance and support. We consider customer progress on action items when assessing their ESG performance.

E&S risk profile

The following charts shows the risk profile for our entire portfolio and the new customers contracted in 2023. While new transactions were added to the portfolio, several others were repaid or exited throughout the year. The number of customers in the portfolio increased significantly in 2023, which was partially attributed to a change in how we define our portfolio.26 In 2023, we still include customers in our portfolio if certain administrative processes remain open, even though an exit or repayment has already occurred.

E&S risk profile of full portfolio

E&S risk profile of new customers

FMO categorizes the E&S risk profile of its customers as follows: A and B+ (high risk), B (medium risk) and C (low risk) for direct investments and ID-A (high risk), ID-B+ (high risk), ID-B (medium risk) and ID-C (low risk) for indirect exposure through debt and PE funds.

ESG performance target 

We set an ESG performance target annually for high ESG risk customers in our portfolio contracted prior to 2023 (identified as the ‘target list’). The ESG performance target is a combined metric of high E&S risk customers and customers with a corporate governance officer in the deal. We register and monitor the different types of ESG risks of our high-risk customers and aim to have at least 90 percent of the ESG risks managed at an adequate level by the customers in our target list. 

While we monitor all ESG risks in our portfolio, the target focuses specifically on high-risk customers. Out of a total of 738 customers in our portfolio, 372 customers were classified as high E&S risk (category A or B+), a 12 percent increase from last year.

By consolidating customers within the same corporate group or group of companies and excluding those in B Loans27 or contracted in 2023, we created a target list of 268 customers. These accounted for a total of 3,602 ESG risks monitored throughout the year. The 2023 results indicate that, on average, 91 percent of these risks were adequately managed. In instances where customer performance deteriorates or open action items are not implemented on time, customers receive lower ratings, which bring down the average of the entire portfolio.

E&S performance gaps in our portfolio 

The following chart illustrates the type of E&S impacts and risks, as per the IFC Performance Standards, and the frequency with which high impacts and risks occur. The scale of potential issues in our portfolio is determined by the type, the frequency and the degree to which these risks are being managed by our customers. The frequency of E&S risks is sector agnostic in our direct and indirect financing portfolios. 

Management of E&S risks by FMO high-risk customers

In 2023, FMO identified 75 high-risk customers who did not adequately manage E&S risks, which could lead to higher environmental and social risks. In some instances, E&S non-performance may stem from broader (financial) issues, requiring loan restructuring. In such cases, we offer additional support to our customers to help them carry out the proposed improvements. In other instances, non-performance could be the result of irreversible E&S and human rights impacts. In these types of cases, we encourage the customer to undertake appropriate analyses and implement corrective actions. For the most part, we are confident that we can bring the customer back on track within a reasonable timeframe. However, if the customer is unresponsive, a complete exit may need be considered. Our E&S engagement is tailored to each customer's unique circumstances.

The following table provides an overview of the current E&S performance gaps we have identified and how we engage with these customers. It includes the number of customers for which subpar performance has been identified (denoted by 'n').

Serious Incidents 

We believe that robust occupational health and safety (OHS) management systems are integral to an employer’s duty of care, improve job quality and add value to a business. Unfortunately, OHS norms and regulatory systems can be weak in emerging markets, leading to serious accidents occurring more frequently. Where a customer’s mitigation practices fall short of (international) standards, we develop and agree an ESAP with the customer to close those gaps. We also help customers to develop their OHS risk management capabilities, for instance, through (funding for) training. However, given the large number of people that are employed by our customers and the challenges of operating in emerging markets and developing economies, we acknowledge that serious incidents cannot always be avoided.  

FMO requires its customers to report within 72 hours any incident that occurs on or near any site, plant, equipment or facility belonging to the customer resulting in a loss of life, a material effect on the environment or a material breach of the law – inter alia – as well as how the incident has been dealt with. We follow up on each incident to ensure that a meaningful root cause analysis is conducted and corrective action is implemented. 

In 2023, regrettably, 21 FMO customers reported 51 fatal incidents with a total of 60 fatalities (2022: 85 fatalities). We aim to provide a comprehensive overview of all fatalities resulting from financed activities, and expect that our customers hold themselves to the contractual agreement to report any occurrence. However, the risk remains that some incidents may not have been reported to us and have therefore not been included in these numbers.

Independent complaints mechanism

FMO has implemented an independent complaints mechanism (ICM) for project-related complaints. The ICM ensures the right to be heard for complainants who feel affected by an FMO-financed operation, facilitating dispute resolution and assist FMO in drawing lessons learned. It also monitors the implementation of measures to bring a project into compliance or agreed as outcome of a mediation process. For details on the governance of the ICM, please refer to the chapter 'Corporate governance'.

In 2023, four new project-related complaints were received. One was declared inadmissible, one is currently under assessment, and two were processed as part of an ongoing complaint (2022: one new admissible complaint). Information about the status of complaints filed in earlier years can be found on our website.