S4 Consumers and end-users

S4 Introduction

Consumers and end-users in the context of FMO’s business model are the beneficiaries and users of the products or services of FMO’s customers in the sectors of Agribusiness, Food & Water, Energy and Financial Institutions (FIs). FMO proactively seeks investment opportunities that contribute to a more inclusive economy and improve access to basic goods and services under our strategic goal of Reducing Inequalities (RI), with a particular focus on underserved consumers and end-users, including women.

FMO invests in customers who provide access to food, energy and financial services, and thereby positively impact consumers or end-users. In line with our strategy, we invest in agribusiness, food and water to support agricultural supply chains to increase food security where we invest in global merchants, input providers, food companies and companies that support smallholder farmers to improve their yields. In the energy sector, we invest in a range of solutions, including those that target low-income and marginalized populations who face challenges with access to reliable and affordable energy. Additionally, through our investments in FIs, we facilitate MSMEs to gain access to capital, support business growth and channel finance to businesses and end-beneficiaries that we cannot directly finance efficiently. In collaboration with FI customers, we also identify, target and reach underserved segments of the population, including youth, women and other economically marginalized customer groups.

A potential negative impact of FMO’s investments that has been identified as material is the potential undue financial stress on users of financial products that are offered by FMO’s FI customers in particular. To mitigate potential negative impacts related to over-indebtedness, FMO has integrated the Client Protection Principles (CPPs) into its Sustainability Policy, supporting responsible lending practices when our customers are providing finance to natural persons or micro-enterprises. We want these borrowers to grow their businesses sustainably and not be worse off by taking credit. We require customers that provide micro finance to adhere to the Client Protection Principles, which set the minimum standards that end-customers should expect when doing business with a financial service provider (FSP). The CPPs focus on the prevention of over indebtedness, transparency, and responsible pricing.

Our 2030 Strategy has also identified an opportunity for FMO to invest in new FI products, markets and/or technologies that expand market access for financial products, allowing for additional funding or investment opportunities for FMO.

Also within the scope of our Reducing Inequalities ambition is the potential positive impact that FMO has on reducing inequalities between countries. In this context, FMO aims to increase investments in least developed countries (LDCs) and aims to invest responsibly in fragile states and support market creation, with Africa in particular representing our largest portfolio. Consumers and end-users in LDCs often lack access to affordable financial services, energy, and food. LDCs face significant challenges in their development due to structural, historical, and geographical factors. They are highly vulnerable to economic and environmental shocks and have low levels of human assets. LDC status is determined by the United Nations, according to specified criteria and indicators. The RI Label Guidelines 2024 contain the LDC List Annex that is updated annually.

S4 Impacts, risks and opportunities

More explicitly, FMO has identified the following impacts, risks and opportunities (IROs) as a result of our strategic investment focus, double materiality assessment (DMA) and expertise related to the topic of consumers and end-users. Table 49 gives an overview of how each IRO relates to the policies, actions and targets respectively.

Table 49. IROs and Policies and Actions and Targets

S4-1 Policies

Policies towards improved access to better basic goods, services and income generating opportunities

Our general investment objective is to contribute to the development of private sector businesses in developing countries in the interest of the economic and social progress of those countries. In this case improving access to food, energy and financial services. This aligns with the development goals of the Dutch Government.

FMO sees investment in inclusive growth as a key means for the private sector to contribute to reducing inequalities. Inclusive growth is driven by inclusive business and employing market-based solutions to expand access to essential and affordable goods, services and livelihood opportunities. Expanding access refers to first-time access or improved access to goods, services or livelihood opportunities which improve the quality of life or incomes of consumers/end-users. Furthermore, FMO proactively seeks investments that reach women as end-users of goods and services. We label and steer our investments towards these objectives and they are a standardized element of the financial proposal and are presented as part of the basis for investment decision-making.

The RI Label has been put in place to classify individual investments ex-ante as per their potential impact and to steer investments towards specific impact objectives related, among other things, to consumers and end-users. (See 'ESRS 2 - IRO management') Label categories related to improved access to better basic goods and services and generating income opportunities include companies that contribute to access to food, last mile delivery of power and basic goods and services to low-income and underserved populations (including women and consumers in LDCs). Definitions and eligibility thresholds are based on practices of peer DFIs and other industry standards, however they are FMO-specific.

See an example of a definition and related criteria below.

Table 50. Last mile delivery of power

Policies towards reducing undue financial stress on end-users

To mitigate potential negative impacts related to financial stress on end-users (e.g. over-indebtedness), we have embedded the CPPs in our investment process. The principles are a financial consumer protection standard developed by the Smart Campaign, an initiative led by the Center for Financial Inclusion (as of 2020, the standards are managed by Cerise+ SPTF). They define the minimum standards that end-clients should expect to receive when doing business with a financial service provider and guide responsible lending practices. The standard consists of seven principles, including prevention of over-indebtedness specifically.

FMO assesses all financial institutions, non-banking financial institutions, and corporates providing finance to natural persons or micro-enterprises against these principles, utilizing the CPP Toolkit that guides investment teams in identifying potential negative impacts, mitigants and action plans in line with FMO’s Investment Criteria. This part of the investment process is called a CPP Review. The review is conducted during due diligence and included as an input in the Clearance in Principle and Financial Proposal stage of FMO’s investment process, as well as during annual customer credit reviews. The process is reviewed by FMO’s Credit department to ensure guidelines have been applied when relevant. The action plans are monitored by investment teams.

In relation to the protection of end-users and consumers in general, FMO is committed to acting consistently with the United Nations Guiding Principles for Business and Human Rights and the OECD Guidelines for Multinational Enterprises. The CPPs are our operating standard for implementing our human rights commitment for FI customers. We use them as a key reference for financial intermediaries identifying potential human rights impacts, defining customer requirements and responsibilities towards their consumers and end-users, and for monitoring performance during the tenor of our engagement.

No severe human rights issues and incidents were reported to FMO through the ICM or the Integrity and Issue Management Committee (IIMC). The IIMC is informed by the ICM, FMO’s human rights due diligence process, the Serious Incident Register, and ex-ante and ex-post disclosure questions as well as questions by external stakeholders such as NGOs, the media or parliament.

S4-2 Processes for engaging with consumers and end-users

FMO does not have a process for engaging with the consumers and end-users of our customers directly. Our customers engage with this group as they are their direct customers.   

FMO has criteria to facilitate a risk-based assessment of Financial Institutions and other companies providing financing to natural persons or microenterprises for alignment with the CPPs. For high-risk customers an external CPP assessment is required to confirm gaps with an action plan developed and implemented to address gaps identified. An independent consultant or expert may engage with end-users.

S4-3 Processes to remediate negative impacts and channels to raise concerns

As part of the CPPs and IFC Performance Standards (IFC PS), customers of FMO are required to make channels available for stakeholders to raise concerns or needs directly and have them addressed. In particular, customers of FMO are expected to have a grievance mechanism in place that is accessible to public/external stakeholders, including consumers and end-users, follows a transparent process, ensures confidentiality of complaints and assure that stakeholders raising concerns will not be subject to retaliation or reprisal. Through our due diligence process, depending on the type of customer and E&S risk category, the customer’s grievance mechanisms are assessed against the standards of the CPPs and requirements of the IFC PS (e.g. number and frequency of complaints, whether these have been resolved, how, etc.).

In addition to this, FMO has an Independent Complaints Mechanism (ICM) that allows external parties to file a complaint concerning investments or projects financed by FMO. The ICM ensures the right to be heard for complainants who feel affected by an FMO-financed operation, facilitating dispute resolution and assisting FMO in drawing lessons learned. The ICM includes a non-retaliation statement to protect complainants when raising concerns. An approach of continuous improvement is applied and the ICM annual report describes the overall effectiveness of the mechanism (publicly). Policies and procedures are evaluated at least every four years. 

More information on FMO’s general approach to and processes for providing or contributing to remedy is explained in the section 'S2-3 Processes to remediate negative impacts and channels to raise concerns'. The Minimum Disclosure Requirements for the ICM Policy are in the section 'ESRS 2 – Strategy, business model and value chain'.

S4-4 Key actions

General actions

On an ongoing basis we strategically steer toward investments that reduce inequalities within and between countries. Investment teams seek opportunities that improve access to better basic goods and services, income-generating opportunities, new FI market opportunities and products, and in LDCs via the RI Label and label target. 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. Technical assistance is also available to support customers, including a framework technical assistance program for customers pursuing gender equality objectives.

Specific initiatives in 2024 towards reducing undue stress on end-users 

In 2024, FMO hired a CPP specialist who will be based in the Sustainability Standards Integration team in the ESG+ department. This specialist will support investment teams in aligning investments with the CPPs.

We also conducted an evaluation on Client Protection to understand the best practices and risks. FMO hired external consultants to evaluate how investees implement the CPPs and gather lessons learned. They conducted two case studies with Financial Service Providers (FSPs) that are customers of FMO and their customers. The evaluation included interviews with FSP management and their staff, as well as in-person and phone surveys with around 250-270 end-customers per FSP. Additionally, they held six-eight focus group discussions and conducted interviews with about 14 customers per FSP to delve deeper into client protection topics. The findings highlighted some best practices in client protection and identified emerging risks. These risks are areas where FSPs can improve to ensure customers have a better experience and reduce potential negative impacts. The results of these case studies will be compiled into a final report in 2025, which will help FMO understand key risks and how to address them.

Actions planned in 2025 towards reducing undue stress on end-users  

In 2025, FMO will review the current implementation of the CPPs. The goal of the review is to ascertain the minimal standards that end-users should expect to experience when doing business with an FSP. The methodology assesses the risk that the CPPs are not met by a client. If a risk is identified, the client is required to develop an action plan. Our commitment to the CPPs will remain unchanged.

Table 51. Minimum Disclosure Requirements for Actions

S4-5 Targets

FMO aims to have developed a total committed portfolio of at least €10 billion in SDG 10 in 2030. For 2024, our target was €5 billion. Detailed information on this target is provided in 'ESRS 2 – IRO management'.

This target does not distinguish specific categories within the RI Label, which means that the target includes women in the value chain, underserved consumers and end-users and access to financial services, energy and food, as well as other categories. The target also relates to the potential positive impact FMO has on inclusion of women in the workforce and improved access to better basic goods, services and income-generating opportunities, including reaching women as end-users of goods. Consumers and end-users are not engaged directly in setting or tracking performance against these targets, nor in identifying lessons or improvements as a result of performance.

S4-5 Metrics

On an annual basis, FMO tracks the entity-specific metric related to our objective towards positive impact. FMO assesses new investments against the criteria of the ‘Reducing Inequalities Label’ for ex ante potential to contribute to positive impact through, among other things, improved access to better basic goods, services and income generating opportunities and investments in LDCs. As such, we report on RI total new investments. For more information on this metric, please refer to 'ESRS 2 - IRO management'.