E4 Biodiversity and ecosystems

E4 Introduction 

FMO recognizes the value of ecosystems that form the natural capital for the world economy. Their degradation poses a direct risk for FMO’s customers and the societies in which they operate. When we talk about biodiversity, we look at it from a broader perspective, taking into consideration nature and natural capital. While biodiversity and nature are not always explicitly singled out as specific objectives in the way FMO manages on sustainability-related matters (see 'ESRS 2 - IRO Management'). FMO’s impact management procedures are aligned with environmental conservation, sustainable use of natural resources, and protection of ecosystems. Furthermore, they promote consideration of how investments affect biodiversity and the pursuit of investments that support nature-based solutions and conservation goals. FMO aims to achieve positive impacts through biodiversity finance that are focused on for instance nature-based solutions and forestry- and regenerative agriculture investments. As per the 2030 Strategy, FMO aims to increase the volume of investments contributing to biodiversity. Together with our partners, FMO committed to engage on climate adaptation and resilience, and biodiversity, by creating coalitions with key nature conservancy organizations, contributing to the understanding of the landscape approach, promoting community and stakeholder engagement. 

E4 Impacts, risks and opportunities

Table 24 below gives an overview of how each material IRO relates to policies, actions, and targets, which will be covered in the sections of this statement.

Table 24. Overview of how each IRO relates to the policies, actions and targets respectively

We identified biodiversity and ecosystems to be a material topic because of our potential and actual positive and negative impacts from our investments in the agrifood, water, and energy sectors (downstream value chain), and because of the developments in biodiversity-positive financing markets that can create material opportunities for FMO. However, currently we do not consider biodiversity a material topic from the financial risk perspective. For more details, please refer to our double materiality assessment process (DMA) as described in 'ESRS 2 - Double materiality assessment'.  

As part of our assessment on the materiality of the topic of biodiversity and ecosystems in our own operations and downstream value chain we conducted desk research into the agrifood, water and energy sectors looking into international sector standards, peers, trends, and media coverage. Additionally, we considered FMO’s 2030 Strategy and current ways of working (such as our ESG management process, climate risk assessment, Green Label assessments, and forestry strategy). As such, we took into consideration impact drivers such as climate change, land-use change, the impact on marine and freshwater-use, direct exploitation and invasive alien species and pollution, as well as impacts on the state of species, impacts on the extent and condition of ecosystems and impacts and dependencies on ecosystem services.  

While our DMA was being conducted, we were also in the process of creating a methodology to assess our dependency on nature. As this methodology was still in early stages of development during the reporting period, we did not take it into consideration during our DMA.  

For the methodology to assess dependencies on nature we are applying the ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) materiality ratings to help evaluate our exposure to nature-related risks, and to better understand our dependencies and impacts on nature. We expect to continue developing our methodology and improving our ways of assessing dependencies and risks related to biodiversity and ecosystems.

Our Climate Risk Report (see 'E1 - Impact, Risk and opportunity management') formed part of the input for the material risks and opportunities determined in our DMA. Our climate risk assessment explicitly covers physical and transition risks related to climate change, which also indirectly impacts nature, biodiversity and ecosystems. Within the climate risk assessment, the relevant risks for biodiversity and ecosystems are sometimes direct and sometimes indirect (as climate change can affect ecosystems and biodiversity). These risks have been covered as material under 'E1 Climate Change' and we did not find any additional material nature-related risks during our DMA.  

The outcome of our DMA concluded that biodiversity-related outside-in financial risks are currently not material to FMO. However, as our methodology to assess our dependency on nature continues to develop, we may identify material biodiversity-related risks in the future. 

Exploring biodiversity-related opportunities has been embedded into our 2030 Strategy, in which we aim to increase the volume of investments contributing to biodiversity as part of our SDG 13 ambition through the growth of our Green Label investments portfolios. 

As our methodology for assessing dependency on nature is still under development and was not considered during the DMA, we have not yet taken systemic risks into consideration.

We did not consult with potentially affected communities specifically for the purposes of the DMA. As discussed in 'ESRS 2 - IRO management', we apply the relevant IFC Performance Standards (IFC PS) in our investment process and due diligence, which may require consultation of potentially affected communities (depending on the investment) in order to avoid causing negative impacts on communities. Our approach towards affected communities is described further in our ESRS statement 'S3 Affected communities'.  

As the topic of biodiversity and ecosystems is not material to FMO’s own operations, the potential impacts on ecosystem services of relevance to affected communities in FMO’s own operations are not applicable. 

FMO does not have sites of its own that can create material impacts on biodiversity. Some of our investments can take place in physical locations that may be in or near biodiversity sensitive areas. We manage potential negative impacts in our investment process with the implementation of IFC PS6 (Biodiversity Conservation and Sustainable Management of Living Natural Resources).  

We assess on an individual project level whether it is necessary to implement climate mitigation measures. Our relevant process is described further in the section 'E4-2 Policies'.

E4-1 Transition plan 

We identified material potential positive and negative impacts on biodiversity and ecosystems in our downstream value chain. Additionally, we are developing our methodology on how to assess our dependencies on nature, and we are in the process of identifying potential risks from ecosystem degradation, regulatory and market shifts, climate change and biodiversity loss. Lastly, we have identified biodiversity-related opportunities as part of our 2030 Strategy, where we aim to increase the volume of investments contributing to biodiversity towards our SDG 13 ambition and Green Label growth target.

As discussed in the previous section of this statement and in section 'ESRS 2 - Double materiality assessment', no material biodiversity and ecosystems-related risks were identified during the DMA. Therefore, our conclusion from our DMA is that FMO is resilient in terms of biodiversity and ecosystems. 

The DMA covered FMO’s upstream and downstream value chain, and FMO’s own operations. The time horizons used for the DMA were in line with the time horizons mentioned in ESRS 1. Furthermore, no specific stakeholder engagement was performed for the purposes of the DMA on the topic of biodiversity and ecosystems.

As mentioned before, during the reporting period we were developing our methodology to assess FMO’s risks and dependencies related to nature. This methodology covers our entire portfolio (downstream value chain). This work is still in its early stages, and we expect that as we continue to develop our methodology further in the coming years, our understanding of FMO’s resilience in terms of biodiversity and ecosystems will also evolve.

Lastly, during the reporting period, we developed our ‘Biodiversity roadmap’ to outline how we plan to address impacts, risks and opportunities in biodiversity, and increase investments in biodiversity positive finance in line with our 2030 Strategy (see 'E4-3 Actions and resources related to biodiversity and ecosystems').

E4-2 Policies 

Our material potential impacts related to the topic of biodiversity and ecosystems are mainly addressed by one policy: the Sustainability Policy and the relevant supporting documents, which together form the FMO Sustainability Policy Universe (SPU). Our 2030 Strategy and Climate Action Plan describe FMO’s commitment to increase investments in biodiversity.

Below is a description of the relevant documents within the SPU:

• Our Sustainability Policy and related underlying documents outline how we manage our material biodiversity-related IROs. A complete description of the Sustainability Policy is described in 'ESRS 2 - IRO management'.

• 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 (E&S) impacts, including adherence to IFC PS and continuous monitoring. This emphasizes mandatory consultation with the local population affected by the project and specific plans available to compensate for any negative effects.

• Exclusion list: FMO’s exclusion list requires that an investment may not result in the ‘significant conversion or degradation of critical habitats’. Primary forests or forests of a high conservation value are classified as critical habitats.

• ESG management. The general criteria for screening and monitoring customers with regard to negative/adverse impacts on local communities are described in 'ESRS 2 - IRO management'. The following standards are relevant for biodiversity:

  1.  IFC PS1: Assessment and management of environmental and social risks and impacts in relation to communities as well as disadvantaged and vulnerable groups

  2. IFC PS6: Biodiversity conservation and sustainable management of living natural resources

  3. IFC PS3 and 4 address the impacts of customer activities on ecosystem services and areas of importance to biodiversity that affect local communities

• Green Label Guidelines: the Green Label Guidelines provide the methodology and criteria for how to identify investments that are ex ante expected to have the positive impact we aim to create through our portfolio, including when it comes to preserving and growing natural capital and promoting biodiversity.

FMO’s material biodiversity-related IROs are provided in the overview Table at the start of this chapter. These cover the relevant biodiversity drivers mentioned in the application requirements for ESRS E4 (with the exception of pollution which was not identified as a material topic for FMO) and ecosystem-related impacts, risks and opportunities.

In practice, our ESG management process involves identifying, managing and monitoring potential and actual negative impacts caused by our customers in relation to biodiversity and ecosystems. Ecosystem services are the benefits that people, including businesses, derive from ecosystems.

FMO requires customers to identify and avoid negative impacts on biodiversity or ecosystems. Specifically, this requires customers to identify potential negative impacts (IFC PS1 and IFC PS6) such as habitat loss, degradation and fragmentation, possibility of invasive alien species introduction, overexploitation of a habitat and pollution (IFC PS3) that arise as a result of their activities. Where these potential negative impacts cannot be avoided, mitigation strategies and measures (e.g., avoiding impacts through exclusion of land areas within a site for conservation, introducing biological corridors, habitat restoration during or after operations etc.) are to be developed by our customers to minimize the negative impacts (IFC PS6).

Additionally, customers engaged in primary production of living natural resources, such as forestry and agriculture, are required to manage these resources sustainably using industry-specific good management practices (IFC PS6) and this is to be demonstrated by independent verification or certification.

Furthermore, in cases where customers are purchasing primary production (such as food and fiber commodities) from areas with a known potential negative impact of significant conversion of natural and/or critical habitats, FMO requires that these customers implement systems and verification practices to identify where the supply originates, the type of habitat of the area, review supply chains and limit procurement from suppliers where these impacts are identified (IFC PS6 and IFC PS1).

Moreover, customer activities can negatively impact local communities in the following ways:

1. A customer’s operations may directly negatively impact priority ecosystem services that can result in adverse health and safety impacts on local communities (IFC PS4). For example, customer activities in the agricultural sector can result in the loss of natural buffer areas such as wetlands and mangroves which mitigate the effects of natural hazards such as landslides and flooding, thus resulting in increased vulnerability and community safety-related risks and impacts. Some of these impacts can be exacerbated by climate change (IFC PS4).

2. Customer operations can also negatively impact local communities whose livelihoods are dependent on biodiversity in these areas or ecosystem services (IFC PS1).

These negative impacts should be identified and avoided. If deemed unavoidable, then customers are required to implement appropriate mitigative measures (IFC PS4) in consultation with affected local communities (IFC PS1). The process used by FMO to identify and manage IROs to local communities is described in S3.

Throughout the investment process and as part of our due diligence, we assess our customers’ performance against the above standards. The outcome of the assessment is an integral part of the financial proposals that inform our investment decisions. Where negative impacts or gaps in the management of such negative impacts are identified, FMO agrees with the customer on measures and actions to be taken by the customer to close these performance gaps. These actions are formalized in an Environmental and Social Action Plan (ESAP) which is included in the financing contract with the customer. By collaborating with our customers, we aim to address these gaps in order to effectively manage associated (material) negative impacts on biodiversity and ecosystems.

In this manner, FMO sees an opportunity to transform the agriculture sector in our markets through the use of sustainable, resource-efficient and resilient practices and business models throughout agricultural supply chains. We assess our investments for negative impacts and dependencies on nature (as described above) and use this analysis to identify investment opportunities. For example, some investments leave natural forests intact or preserve certain ecosystems while still profitably harvesting products. This is how we turn identified dependencies and negative impacts into opportunities for investment.

In addition, the biodiversity-related parts of our Sustainability Policy and associated documents are linked to several other third party standards and initiatives:

• Our biodiversity commitments are linked to SDG 13 on climate action, as we actively participate in biodiversity efforts by forming partnerships with key conservation organizations, enhancing understanding of landscape approaches, and encouraging community and stakeholder involvement.

• Additionally, the European Regulation on Deforestation-Free Products (EUDR) came into force in 2023. This regulation requires companies to prove their products are deforestation-free from 30 December 2025. Although it will not affect FMO directly, it will become relevant as it poses a transition risk for many of our agrifood partners. It is applicable downstream, to customers in our portfolio (especially the Agribusiness, Food and Water portfolio). More information on how we consider acting upon this is included section 'E4-3 Actions and resources related to biodiversity and ecosystems'.

The target of investing €10 billion in SDG 13-related investments by 2030 contributes to the positive impact of FMO and the opportunity for FMO to restore and regenerate ecosystems and create and develop new markets with a biodiversity positive impact. The biodiversity-related eligibility criteria for an investment to receive the Green Label are as follows:

• A financed activity is either contributing to conserving/increasing biodiversity or the core business/aim of the project is to conserve or increase biodiversity.

• The transition to, or maintenance of, silvo-pastoral systems, if no conversion of natural land is involved.

Since we did not identify any material biodiversity-or ecosystem-related IROs for FMO’s own operations, we have not adopted any biodiversity and ecosystem protection policies covering FMO’s operational sites.

Since FMO’s potential negative impacts through unsustainable land use change or agricultural practices were found to be material, our approach to managing these impacts is described above. The potential positive impact of investing in projects that promote sustainable land use through ecosystem restoration and regeneration is also described above.

Sustainable oceans and sea are not material for FMO and therefore no related policies exist.

Two policy aspects are relevant to how we address deforestation at FMO. First, FMO uses an exclusion list when evaluating potential investments. Part of this exclusion list is the fact that an investment may not significantly contribute to the conversion or degradation of a critical habitat, like primary or high conservation-value forests. Secondly, the IFC PS6 addresses deforestation by emphasizing the need to protect and conserve biodiversity, maintain ecosystem services, and manage living natural resources sustainably

IFC PS6 requires customers to take proactive steps to address deforestation and its impacts on ecosystems and biodiversity.

E4-3 Key actions

We have formulated actions from the reporting period at the operational level, which mainly address the material IROs, and at the strategic level. Additionally, we present the main future planned actions. The scope for these actions concerns our downstream investment portfolio.

Operational actions in 2024

1. Increase the Green-labelled share of our portfolio. Investments are assessed based on potential impact and include increasing biodiversity positive-related investments in line with the relevant biodiversity criteria in our Green Label. Our investment teams seek opportunities in biodiversity finance on an ongoing basis. Our Sustainable Finance Advisory team provides investment teams with ongoing support on such transactions. Investment teams receive regular training on the label and opportunities in these focus areas.

2. Keep using and improving the IFC PS6 standard application including training and ESAPs at customer level to manage potential negative impact.

Strategic actions in 2024

1. We developed a Biodiversity roadmap that describes how we plan to manage biodiversity impacts, risks and opportunities and increase investments in biodiversity positive finance by 2030.

2. We started developing our methodology to assess our dependency on nature, as part of our climate risk assessment project that is covered in 'E1 Climate change'.

3. We organized a training on managing negative impacts of biodiversity, in line with IFC PS6 to allow staff to upgrade their existing knowledge on the IFC PS6 content or process.

Future planned actions

1. Green Label update planned for 2025.

2. KPI development to monitor strategic impact ambitions. We started the development of two KPIs to monitor strategic impact ambitions in 2024, covering both biodiversity opportunities and potential negative impacts; these are expected to be in place earliest in 2026.

3. Continue developing a pipeline for biodiversity financing in line with our strategic commitments.

Table 25. Minimum Disclosure Requirements for actions and resources related to biodiversity and ecosystems

In 'ESRS 2 - Governance of sustainability matters' we provide information on the teams and departments that are involved with the management of material IROs, which relate to the implementation of the operational actions described above.

No actions described require significant OpEx or CapEx. 

In principle, we do not use biodiversity offsets in our action plans. However, on an individual investment level, FMO’s Biodiversity Mitigation hierarchy is based on IFC PS6 and denotes offsetting as a last resort for residual impact after following the implementation of prevention/avoidance, minimization, and restoration measures. Biodiversity offsets adhere to the ’like-for-like or 'better' principle and are designed and implemented to achieve measurable conservation outcomes that can reasonably be expected to result in no net loss of biodiversity and net gain in critical habitats.

Additionally, on an individual project level, we identify any needs for offsets and apply specific relevant key performance indicators on a case-by-case basis. The same applies to financing effects and types, areas and quality criteria applied to the offsets. These will therefore not be described in more detail here as they are not part of our action plans.

IFC PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources forms a key element of FMO’s ESG performance assessment of direct high-risk customers. When significant impacts on biodiversity are identified, our projects must develop and implement a Biodiversity Action Plan (BAP), which explicitly describe the project’s mitigation strategy and how local and indigenous knowledge and nature-based solutions are incorporated into conservation strategies and actions. FMO ensures its projects consult protected area managers, affected communities, indigenous peoples and other stakeholders. Affected communities should participate in this identification process in accordance with the stakeholder engagement process as defined in IFC PS1. This process involves Indigenous Peoples’ representative bodies and organizations as well as members of the affected communities of indigenous peoples and provide sufficient time for indigenous peoples’ decision-making processes.

Our stakeholder engagement process involves disclosure and dissemination of information, consultation and participation, grievance mechanism, and ongoing reporting to affected communities. Where projects are likely to generate adverse E&S impacts to affected communities, FMO will implement a Stakeholder Engagement Plan tailored to their characteristics and interests. Following IFC PS6, FMO makes every reasonable effort to verify that during this process, community representatives represent the views of affected communities and that they can be relied upon to faithfully communicate the results of consultations to their constituents.

E4-4 Targets 

We currently have no specific biodiversity targets to manage the material IROs, and for the time being, we do not intend to set any specific targets. This topic is continuously evolving, which makes it currently challenging to predict progress and set reliable targets.

We do, however, have two portfolio targets (see 'ESRS 2 - IRO management') that have a connection to our biodiversity portfolio:

• 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. This includes biodiversity-related risks through IFC PS6.

• We aim to grow our SDG 13-related investment portfolio to €10 billion by 2030, which includes but is not limited to biodiversity-related investments.

E4-5 Metrics 

On an annual basis, FMO tracks entity specific metrics related to Biodiversity. These metrics enable us to monitor our objective regarding positive impact, as well as to identify, manage and monitor potential and actual negative impacts caused by our customers in relation to biodiversity and ecosystems through our impact management process.  

We assess the potential positive biodiversity impacts of investments ex-ante. This assessment is done through our Green Label, which we assign to investments that are expected to benefit biodiversity. The Green Label includes but is not limited to Biodiversity.

FMO tracks the performance of high-risk customers against the requirements of the IFC PS’s in relation to biodiversity and ecosystems. The methodology used to determine this metric and any identified performance gaps for the year as well as the Green Label have been outlined in 'ESRS 2 - IRO management'.