E3 Water and Marine Resources

E3 Introduction

FMO recognizes the critical role of water management in supporting climate and nature goals, ecosystems, and economic development. FMO invests in projects dependent on freshwater resources in the water, energy and agrifood portfolios, and impacts are expected regarding both water quality and water availability. As part of the impact management strategy, FMO has an ambition to invest in water efficient projects that align with the wider goals of environmental protection, safeguard affected communities, and ensure the sustainable use of water resources. By addressing water impacts, FMO aims to contribute to sustainable development and help mitigate the negative impacts of climate change on water resources.

E3 Impacts, risks and opportunities

The following table provides an overview of how each impact, risk and opportunity (IRO) relates to the policies, actions and targets respectively. The impacts caused by our own operations fell below the materiality threshold. However, two negative impacts in our investment portfolio are considered to be material.

It should be noted that the double materiality assessment (DMA) for E1 on Climate included a Climate Risk Assessment, through which a material financial risk related to water dependency was identified. This risk will be reported under 'E1 Climate change' as it relates to climate change effects that lead to increased water scarcity.

Table 23. Overview of how each IRO relates to the policies, actions and targets respectively

E3-1 Policies 

Our Sustainability Policy and related underlying documents outline how we manage our material water-related IROs. The Sustainability Policy is mostly related to our (positive and negative) impacts in our downstream value chain and is part of the Sustainability Policy Universe.

The ESG management approach for screening and monitoring customers with regard to potential negative impacts on local communities are described in 'ESRS 2 - IRO management'. FMO has adopted the IFC Performance Standards (IFC PS) as its operating standard. The following documents are relevant for water:

1. IFC PS3, 4 and 6 provide specific guidance on water related topics, as they respectively cover Resource Efficiency and Pollution Prevention, Community Health, Safety, and Security, and Biodiversity Conservation and Sustainable Management of Living Natural Resources.

2. Our Position Statement on Hydropower Plants outlines our approach to investing in hydroelectric projects, emphasizing the balance between harnessing their economic and environmental benefits and rigorously assessing and mitigating potential technical, environmental, and social impacts, including adherence to IFC PS and continuous monitoring.

FMO’s policies that address water-related impacts are aimed at reducing the material negative impacts downstream in FMO’s value chain. FMO aims to support customers to improve their sustainable use of natural resources, such as water, and to prevent degradation of ecosystems. FMO assesses its direct and indirect potential and existing investments over time according to ESG criteria such as the presence and quality of the E&S management system, availability, quantity and quality of resources such as water for local communities and related impacts on resource efficiency including the consumption and use of water. The scope of this assessment applies to the financed activities and their primary suppliers, though FMO may look beyond the direct financed activities when salient risks are expected in the value chain.

Potable water availability or sanitary wastewater collection, treatment, or discharge are also considered, whereby opportunities are explored to improve these aspects, especially where these can be provided at marginal cost to the project. 

When projects are a potentially significant consumer of water, in addition to applying the resource efficiency requirements of the IFC PS3, FMO requires its customers to adopt measures (e.g., use of additional water conservation measures, the use of alternative water supplies, water consumption offsets, evaluation of alternative project locations) that avoid or reduce water usage so that the project’s water consumption does not have significant negative impacts.

FMO requires that projects implement technically and financially feasible and cost-effective measures for improving efficiency in its consumption of water, integrating the principles of cleaner production into product design and production processes with the objective of conserving water.

Policies related to water management pertain to an organization's own operations. Since FMO's own operations were not identified as material in the DMA, this type of water management policies is not relevant for FMO. Since the water-related impacts that were identified to be material for FMO are not related to our own operations, there are no policies required to address water stress near one of FMO’s operating sites.

E3-2 Key actions 

As part of the normal due diligence process, we identify performance gaps against our standards, and we agree with our customers on improvements that are required in relation to negative impacts on water and marine resources (e.g. impact of hazardous materials on ecosystem services, degradation of natural resources, water usage etc.). These improvements are translated into an action plan (ESAP) which is incorporated into the contract. The ESAP also stipulates timelines for the customers to close the actions (see 'ESRS 2 - IRO management').

Compliance with the ESAP and closing of actions is monitored as part of the customer credit review process which takes place annually. Where incidents take place, a corrective action plan may be required to mitigate and possibly remediate the impact; this can be agreed with the customer.

E3-3 Targets 

FMO has not adopted targets related to water resources. However, FMO’s 90 percent ESG performance target includes but is not limited to water impact from related investments (incl. IFC PS3, 4 and 6). Detailed information on this target is provided in 'ESRS 2 – IRO management'.