ESRS 2 IRO management

FMO manages material sustainability-related matters, including material impacts, risks and opportunities, through various policies and actions. Material impacts, risks and opportunities identified for S1 and G1 relate to FMO's own operations and are, therefore, managed by FMO's Human Resources and Compliance departments. Material impacts, risks and opportunities identified for E1, E3, E4, S2, S3 and S4 relate to FMO's customers and investments (downstream value chain) and are managed as part of our investment process. In addition, FMO has developed an impact management framework to ensure it takes an integrated approach to managing positive and negative impacts – potential and actual – as well as the financial risks that may result from the negative impacts in its investment portfolio. FMO’s Impact Management Framework outlines the core components of how impact is managed at FMO and describes how these components work together in support of realizing and growing our impact as FMO (see figure 2 below).

Our management approach to our own workforce and business conduct are described in the S1 and G1 topical statements, respectively. Our approach to impact management is common across E1, E3, E4, S2, S3, and S4 and is described in the following section.

Negative impacts and the resulting financial risks are managed through ESG management practices. Negative impacts on people and the environment could result in financial risks, leading to, for example, financial (remediation, legal) costs to FMO or its customer, jeopardize access to capital for FMO (from external investors), jeopardizing the license to operate, jeopardizing shareholder relations or reputational damage. This is further described in the paragraphs relating to ESG management.
Positive impacts are managed through allocating and structuring capital towards the SDGs, mostly through our RI and Green Labels. This is further described in the paragraphs relating to impact management.

Figure 2. Impact management framework

Strategy and policy

FMO’s impact and sustainability commitments are outlined in FMO’s Sustainability Policy, which was first approved by FMO’s Management Board in 2016. The policy is supplemented with our exclusion list, position statements on – among other things – human rights, land governance, fossil fuels and coal, and impact and ESG for financial intermediaries. Together, these documents form the Sustainability Policy Universe (SPU), available on our website. Every three years, the SPU is (re)approved by the Management Board.

FMO requires that all customers comply with applicable environmental, social, and human rights laws in their home and host countries. In addition, FMO upholds (inter)national standards, including the IFC Performance Standards (2012), United Nations Guiding Principles on Business and Human Rights, and the Client Protection Principles (CPPs). FMO requires its customers to comply with these standards and in doing so to identify, prevent and mitigate negative social and environmental impacts.

FMO’s Sustainability Policy and position statements apply to all our new investments. This includes both direct investments and investments through financial intermediaries. This policy is the foundation of our impact management framework and provides guidance for FMO’s internal processes. FMO considers this policy a living document. It will be updated based on various internal and external factors, such as feedback received from key stakeholders, and striving to harmonize practices with peers.

Any material changes to our Sustainability Policy and position statements undergo targeted stakeholder consultation with key experts and general public consultation with various relevant stakeholder groups (e.g., the Dutch government, DFI partners, (commercial) peers, (inter)national Civil Society Organizations (CSOs) and think tanks, and relevant (industry) standard organizations).

Table 6. Minimum disclosure requirements for FMO’s Sustainability Policy

Scope of policy	The scope of this policy extends to FMO’s entire footprint. This includes FMO’s activities at the organizational level and new investments with respect to all products provided by FMO. The nature of the services FMO delivers can in some situations limit FMO’s level of influence. FMO will then apply this policy to the greatest extent possible. This Policy is the foundation of our sustainability management and provides guidance to FMO’s internal processes. This Sustainability Policy is the leading part of a broader Sustainability Policy Universe (see Annex 1 of the Policy) that also encompasses thematic and sectoral Position Statements that complement the Sustainability Policy and give further depth and content to the choices FMO makes.
Accountable body	Management Board with approval delegated to Impact and Sustainability Committee (ISCO)
Third-party standards/initiatives (if relevant)	As part of the Sustainability Policy, FMO upholds various (inter)national standards. They are listed in the policy, which is publicly available. With respect to the management of environmental and social impact, the primary standards that FMO upholds are the IFC PS and the associated World Bank Group Environmental Health and Safety Guidelines. They cover the larger part of the ESG requirements in the OECD Guidelines on Multinational Enterprises, which also reference the UN Guiding Principles on Business and Human Rights.
Consideration to interests of key stakeholders (if relevant)	We invite stakeholders to give their views on new policies and position statements that guide our investment process and decision-making.
Availability to stakeholders (if relevant)	Sustainability Policy Universe, as well as a document describing how FMO navigates dilemmas and issues are all published on FMO’s website.

Allocate and structure capital

FMO’s policy requirements are translated into internal investment criteria that are applied and assessed at the investment level where FMO assesses both the positive and negative impacts to define the boundaries of where we allocate capital. The exclusion lists and ESG risk appetite define the boundaries for negative impacts.

Our labels highlight the potential that individual investments must contribute to certain principles and objectives. The RI and Green Labels help classify individual investments as per their ex-ante (prior to commitment) potential to materially contribute to SDG 10 Reducing Inequalities and SDG 13 Climate Action respectively, thereby allocating capital towards FMO’s strategic impact ambitions.

For each investment, FMO measures volume indicators (assets under management) which include FMO’s RI and Green-labelled total committed portfolio. Labelling processes are operationalized using FMO’s Sustainability Information System (SIS).

Reducing Inequalities Label

The Reducing Inequalities (RI) label is FMO’s framework for identifying investments with the ex-ante potential to materially contribute to reducing inequalities, in line with SDG 10, and explicitly encompassing gender equality under SDG 5. The RI label recognizes investments in least developed countries (LDCs), as defined by the United Nations, and select countries classified as Fragile and Conflict-Affected Situations (FCS), as defined by the World Bank that are also either African countries, small island developing states, or landlocked developing countries. The RI label is an ex‑ante steering and classification framework and, thus, does not measure realized social impact. Its application depends on the availability and quality of transaction‑level data. If information is missing, FMO takes a conservative approach to avoid overstating the results. More information on the 2025 performance results is provided in the sub-chapter 'Performance against our strategy' in the section 'Sector performance'.

Table 7. Minimum disclosure requirements for RI-labelled total new investments

Methodology and assumptions	The RI label is structured around two objectives: - Reducing inequality among countries, through directing financial flows to LDCs and select FCS. - Reducing inequality within these countries through inclusive growth, through inclusive business and economic empowerment. The methodology is informed by international standards and definitions, including the publicly available 2X Gender Lens criteria and definitions of the IFC, G20, OECD, FAO and others.
Validation by external body other than the assurance provider (if applicable)	N/A
Unit	EUR million
2025	2,231
2024	2,250

RI label assessment methodology

To assess the RI label of investments, first it is determined whether the investment meets the RI objectives. Next, the investment is verified against the RI principles, namely whether it improves access to goods, services, opportunities, and economic resources, and enhances the lives of low‑income or marginalized groups (marginalized groups are determined by income thresholds and proxy groups, e.g., youth, women). Finally, the RI allocation is determined. It can be labelled either 100% (RI clients, whose business models inherently reduce inequalities and align with the RI objectives and principles) or partially (0-100%) depending on the use of proceeds of the clients’ activities and projects.

Key definitions

Inclusive business: Market-based solutions to expand access to essential and affordable goods, services, and livelihood opportunities to low-income populations on a scalable basis, by making them a material part of the value chain of companies’ core business as suppliers, distributors, retailers, employees or customers.
Economic empowerment: Access to economic resources and opportunities that help economically marginalized groups participate in, contribute to, and benefit from the economy in ways that recognize their contributions and are dignified and fair, including jobs, financial services, property and other productive assets, skills development and market information.
Low-income populations: Also referred to as the base of the economic pyramid (BOP), are defined by FMO using poverty line of US $6.85 per day in Purchasing Power Parity as a proxy.
Economically marginalized groups: Groups facing structural barriers based on attributes such as gender, age, disability, ethnicity, origin, or migration status. Where direct data is unavailable, FMO uses defined proxy groups (e.g., women, youth, rural populations, migrants, smallholders).
Improved access: When goods, services, and livelihood opportunities are of higher quality than those previously available or are more affordable or efficient than the alternatives being replaced.
Improved lives: Income improvement for low-income or economically marginalized populations, directly linked to the investment activity (e.g., access to jobs, services, finance, markets).

Green Label

The Green label is FMO’s framework for identifying investments with the ex‑ante potential to materially contribute to environmental objectives, particularly climate action (SDG 13), as well as biodiversity, water security, circular economy, and pollution prevention. The Green label is an ex‑ante steering and classification framework and thus does not measure realized environmental impact. Its application depends on the availability and quality of transaction‑level data. If information is missing, FMO takes a conservative approach to avoid overstating the results. More information on the 2025 performance results is provided in the sub-chapter 'Performance against our strategy' in the section 'Sector performance'.

Table 8. Minimum disclosure requirements for Green-labelled total new investments

Methodology and assumptions	The Green label follows two key principles: 1. Contributing to a genuine improvement: going beyond local regulatory requirements (e.g., an investment that contributes to pollution prevention to comply with local regulations is not a genuine improvement and is not considered Green), being unrelated to local resource stress, and being sustainable throughout the value chain. 2. Not contributing to a long-term lock-in of high carbon infrastructure. The framework is informed by the Multilateral Development Banks’ Common Principles for Climate Mitigation and Adaptation Finance Tracking of October 2021 and 2022 respectively, and the MDB Common Principles for Tracking Nature Finance.
Validation by external body other than the assurance provider (if applicable)	N/A
Unit	EUR million
2025	1,761
2024	1,460

Green label assessment methodology

The Green label assessment process begins with applying the Green label principles. All clients are assessed at the activity or project level, and each financed activity must comply with these principles as contractually agreed. Then, the relevant environmental objectives are identified; every activity must align with at least one of FMO’s six objectives: climate mitigation, climate adaptation, biodiversity, water security, circular economy, and pollution prevention. Next, the use‑of‑proceeds category is determined. Clients are classified as (a) Green clients, whose business models inherently deliver environmental benefits aligned with the Green label objectives and can demonstrate these through verifiable activities or certifications; (b) Future‑state activities, representing near‑zero or negative emissions; (c) Transitional activities, meeting at least a 20% efficiency improvement or BAT criterium; or (d) Enabling activities that support the development or implementation of future‑state or transitional activities. Based on the use-of-proceeds category, the Green labelled amount is determined, with Green clients receiving a 100% label and other categories receiving between 0% and 100% depending on the use of proceeds. Finally, annual monitoring is conducted to verify that activities, especially transitional or commitment‑based ones, continue to meet Green label criteria.

Key definitions

Lock-in of high carbon infrastructure: When fossil fuel infrastructure and assets (e.g., coal mines, pipelines, tanker trucks) continue to be used, despite the possibility of substituting them with low-emission alternatives, delaying or preventing the transition to (near-)zero emission alternatives.
Best available technique (BAT): Using the most resource-efficient technology or approach that is widely available and applicable today.
20% criterium: If FMO’s investment goes towards an activity, equipment, or expansion, it must be at least 20% more efficient than what is replaced or updated.

ESG management at customer level

Our investments may, unintentionally, lead to negative impacts on people and the environment. FMO is exposed to financial risks resulting from our investment selection, the effectiveness of customers to manage their impacts and the effectiveness of FMO’s engagement therein. At FMO, ESG management covers the management of both negative impacts, as well as potential financial risks. As part of its investment process, FMO screens and categorizes all customers according to their gross ESG risk profile. Gross risks represent the risks inherent to the activity to be financed (for example, sector-specific risks, location of the investment or the nature of operations etc.) irrespective of a customers’ ESG performance. Note that FMO’s E&S risk categories are aligned to the IFC’s Environmental and Social Risk Categorization Framework (please refer to the FMO Sustainability policy, specifically the ‘ESG Risk categorization Annex’ and the ‘Position Statement on Impact and ESG for Financial Intermediaries’, that are available on the FMO website, for further details). Based on this initial screening, the following categorization of customer E&S risk profiles is determined: 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.

Note that in the case of direct investments, E&S impact is assessed at customer-level. For indirect exposure to FIs, E&S impact is assessed by considering the operations as well as the investments of the FI (i.e., on a portfolio level basis). In particular, the FI customers’ level of exposure to high E&S impact sectors is considered. Similarly, in the case of funds, the E&S risk categories of the underlying investments the fund is composed of are taken into consideration when determining the funds' E&S risk profiles. Similarly, an initial assessment of the corporate governance (CG) risk for a customer is also conducted, resulting in a CG risk categorization of High, Medium or Low. The CG risk categorization depends on the number of CG risk drivers identified through the CG Rapid Risk Assessment tool.

Customers are evaluated , as well as their ESG performance, i.e. their capacity to manage these. FMO assesses the customers’ performance in mitigating and managing ESG impacts during the due diligence by conducting site visits and stakeholder engagement by dedicated ESG specialists for high ESG risk customers. The level and exact focus of engagement depend on the type and severity of impact and/or the extent to which the identified impact pose a threat to the environment, communities, the customer and/or FMO.

Impacts that are not adequately managed by high-risk customers are considered a performance gap, and recorded as such. FMO accepts a limited gap in successful ESG management to our standards. This gap acknowledges residual risk posed by contextual and implementation challenges in our market. FMO ESG specialists work with customers to develop Environmental and Social Action Plans (ESAPs) and Corporate Governance Action Plans (CGAPs) to enhance customer ESG impact management processes and remediate these gaps.

For FMO’s high ESG risk customers, we monitor our exposure through FMO’s proprietary SIS. The net ESG risk exposure is the customers’ gross risk exposure corrected for by the customer’s performance managing down the negative impact.

E&S performance tracking is conducted for all high E&S risk customers, to determine their adherence to the IFC PS. The performance tracker considers all applicable IFC PS criteria per customer and allows these to be scored to assess the potential negative impacts (the risk exposure the IFC PS criteria) and the performance of the customer to mitigate it. For each applicable IFC PS criteria for each high E&S risk customer, the following is determined: 1. the customers’ risk exposure (1 – Low | 2 – Medium | 3 – High), and 2. the customers’ performance score against (1 – Exemplary | 2 – Good | 3 – Fair | 4 – Caution | 5 Unacceptable). The combination of these elements leads to a 7-letter scale E&S risk rating (AAA, AA, BBB, BB, CCC, CC, D) for each applicable criterion. For example, a high E&S risk exposure combined with a satisfactory performance result in E&S risk rating of BB for this criteria; similarly, a medium E&S risk exposure combined with a caution performance result in an E&S risk rating of CCC for this criteria.

CG performance tracking is conducted for all high and medium CG risk customers to determine their level of CG maturity (basic (1), emerging (2) and advanced (3)) and assess the adequacy of the CG maturity given, the nature, complexity and size of the customer (1. Adequate, 2. Adequate but room for value add or 3. Inadequate). The CG maturity levels are derived from te the Corporate Governance Development Framework which is Based on the IFC’s Corporate Governance Methodology. The combination of these elements leads to a 7-letter scale CG risk rating (AAA, AA, BBB, BB, CCC, CC, D) per customer. For example, a basic average CG Maturity combined with adequate but room for value add CG adequacy performance result in CG risk rating of CCC for this customer; similarly, an emerging CG maturity combined with an adequate performance result in a CG risk rating of AA for this customer.

Ratings BB/BBB/AA/AAA represent adequate customer ESG risk management per criterion, whilst CCC/CC/D represent performance gaps and are deemed to be inadequate. The lowest rating that the customer has achieved across all IFC PS criteria and the CG risk rating is used as the overall customer ESG performance rating. Performance is monitored over the lifetime of the investment.

It should be noted here that the nature of the ESG assessment does not always allow a strict quantitative delineation. FMO works across numerous sectors, and various dimensions. Hence assessing the ESG risk exposure and performance of our customers in managing their ESG risks will always require some level of expert judgement. Risk management and internal control systems for ESG Risk management are part of FMO's comprehensive risk governance and risk management framework and follows the three lines model.

ESG performance tracking in SIS is integrated within the investment process: FMO’s Credit department evaluates the ESG impacts and performance of each financial proposal and prepares credit advice to guide the final investment decision. Upon approval, all customer contracts will include ESG requirements, and FMO monitors the implementation of these requirements by our customers (throughout the investment period) through regular contact and site visits, often supported by independent consultants. Customer compliance against the ESAP and CGAP, as well as closing of actions, is monitored as part of the Customer Credit Review (CCR) process. In addition, FMO monitors serious incidents as reported by our customers or underperformance that would warrant corrective actions. We follow up on each incident to ensure a robust root cause analysis is conducted and corrective action implemented.

ESG performance is monitored and updated throughout the lifetime of the investment as part of the annual review cycle of each customer, enabling FMO to have an up-to-date portfolio-wide view of our customer’s performance in managing potential ESG negative impacts.

Impact management at customer level

At FMO, different teams contribute to different core elements relating to the management of positive impacts. This includes defining the strategic impact ambition of an investment aligned with 2030 Strategy ambitions, providing methodological guidance and defining reporting frameworks (how to measure), gathering data from customers and other sources, and recording this data in FMO’s SIS; and aggregating and reporting this data internally and externally.

To measure, report and monitor the development impact of transactions, deal teams work with customers to define how the investment supports the core SDGs. They select approximately one to three impact indicators that best capture the intended positive impact of that investment and establish baselines and (where possible) time-specific expected values for these indicators. During the annual review process, customers report on the indicators.

FMO engages with other EDFIs to harmonize indicators to measure impact and align requirements across DFIs for customers. FMO strives towards alignment vis-à-vis the Harmonized Indicators for Private Sector Operations (HIPSO), the Global Impact Investing Network (GIIN), and Impact Reporting and Investment Standards Plus.

Customer Value Creation 

Customer Value Creation (CVC) is FMO’s active contribution to support customers to reach their financial and non-financial objectives. FMO offers a range of value creation services and products to customers including the provision of investment, financial and non-financial advisory by FMO own staff (f.i., on governance, E&S management or green finance), development contributions that facilitate external expertise, technical assistance and access to FMO’s networks and lastly inherent contributions where partnering with FMO may provide reputational value that may benefit the customer’s objectives.

Three key motivations have helped shaped FMO's definition and intentions under CVC: (1) Focus on our customers amid competing priorities, (2) optimize our resources allocated to customer value creation activities, and (3) improve our value proposition in the market.

Monitor and manage impact at portfolio level 

At the portfolio level, FMO manages and steers towards positive and negative impacts. FMO measures volume indicators.

Impact management at portfolio level

The volume indicators include FMO’s RI and Green-labelled total committed portfolio. FMO has a 2030 target of €10 billion for investments that will contribute towards SDG 10 Reduced Inequalities and SDG 13 Climate Action. The labels are a strategic steering tool to this end. In addition, FMO has identified several metrics to measure FMO’s contributions to the SDGs. While these metrics will be monitored for broader impact management purposes or external reporting requirements, only the metrics with a target are used to steer towards our strategic impact objectives.

Table 9. Minimum disclosure requirements for SDG 10 Target

Target level to be achieved and unit of measurement, and clarification whether target is absolute or relative (where applicable)	By 2030, we aim to have an investment portfolio of at least €10 billion in SDG 10 by financing assets that contribute to our SDG 10 objectives.
Scope of target	SDG 10 investments in the total committed portfolio
Baseline value	€4.0 billion
Baseline year	2021
Application period	2023 – 2030
Milestones or interim targets	Annual targets are set as part of the annual business planning process. 2025 target: €1.46 billion
Methodologies and assumptions	The target has been established following the intent to double FMO’s impact regarding SDG 10 compared to the baseline year 2021. In the absence of a single impact metric, we focused on doubling the size of the relevant portfolios. Setting the target involved a forecasting exercise of the portfolio and subsequent internal discussions. Key assumptions for this target are that FMO can contribute to reducing inequalities within and between countries by steering investments towards 1) least developed countries or 2) activities that support inclusive growth. Hence, an investment can receive an ex-ante RI Label if the investment takes place in, or funds are expected to flow predominantly to LDCs (aligned with SDG 10.9) and/or if the investment is expected to contribute to inclusive business practices or targets the bottom 40 percent of the population (SDG 10.1). Portfolio trajectories per department were forecast during the 2030 Strategy process and SDG10 targets were confirmed with investment directorates, based on past and expected performance. It should be noted that portfolio growth was forecasted using a stable EUR/USD foreign exchange (FX) rate of 1.10 through 2030. An appreciating USD has a positive effect on our portfolio results.
Target related to environmental matters is based on conclusive scientific evidence (if applicable)	N/A
Stakeholder involvement with target setting	The target has been set as part of the 2030 Strategy process. Key input to setting the target was the Corporate Evaluation of our performance on reducing inequalities in the years 2015-2020. The evaluation was concluded in 2021. The target and strategic focus were discussed both formally and informally with key stakeholders during the strategy process. This included the Dutch government, being the main shareholder, and multi-stakeholder dialogues held in the course of 2021.
Changes in target	No changes were made to the target
Performance	There was a 1% decrease in 2025 compared to 2024, to €2.23 billion. However, the target of €1.46 billion, that was set for 2025 was still reached. For more information on key trends and drivers, refer to the sub-chapter 'Performance against our strategy', 'Sector performance'.

Table 10. Minimum disclosure requirements for SDG 13 Target

Target level to be achieved and unit of measurement, and clarification whether target is absolute or relative (where applicable)	By 2030, we aim to have an investment portfolio of at least €10 billion in SDG 13 by financing assets that contribute to our SDG 13 objectives
Scope of target	SDG 13 investments in the total committed portfolio
Baseline value	€4.1 billion
Baseline year	2021
Application period	2023 – 2030
Milestones or interim targets	Annual targets are set as part of the annual business planning process. 2025 target: €1.45 billion
Methodologies and assumptions	The target has been established following the intent to double FMO’s impact regarding SDG 13 compared to the baseline year 2021. In the absence of a single impact metric, we focused on doubling the size of the relevant portfolios. Setting the target involved a forecasting exercise of the portfolio and subsequent internal discussions. The Green Label is applied ex-ante to investments that are identified to contribute to potential positive impact on climate. Portfolio trajectories per department were forecast during the 2030 Strategy process and SDG10 targets were confirmed with investment directorates, based on past and expected performance. It should be noted that portfolio growth was forecasted using a stable EUR/USD FX rate of 1.10 through 2030. An appreciating USD has a positive effect on our portfolio results.
Target related to environmental matters is based on conclusive scientific evidence (if applicable)	The Green Label methodology is based on and largely aligned with the Multilateral Development Banks (MDB) common principles on climate- and nature- finance tracking. This set of principles is not intended to be scientifically evidenced per se, but evidence (such as certification of agricultural products or buildings) is required to support that these investments meet the principles and definition as set out in FMO’s Green Label methodology.
Stakeholder involvement with target setting	The target has been set as part of the 2030 Strategy which has been discussed both formally and informally with key stakeholders during drafting, including the Dutch government as key stakeholder and shareholder.
Changes in target	No changes were made to the target
Performance	There was a 21% increase in 2025 compared to 2024, to €1.76 billion. This means that the target of €1.45 billion, that was set for 2025 was reached. For more information on key trends and drivers, refer to the sub-chapter 'Performance against our strategy', 'Sector performance'.

ESG management at portfolio level

FMO measures ESG gross and net risk in our portfolio to monitor our risk profile and to ensure we remain within risk appetite while measuring ESG performance. FMO has a public ESG target on the ESG performance of its high-ESG risk customers’ portfolio. The target is part of FMO’s Risk Appetite Framework (RAF), which specifies the appetite for accepting residual ESG risk. FMO has a cautious appetite for ESG risk in its investments. Full adherence cannot generally be expected at the start of the relationship. FMO strives for investments to be brought in line with our standards within a credible and reasonable period of time. It is understood and accepted that customers/investees have performance gaps as they need knowledge and resources to implement ESG improvements.

E&S performance gaps

Table 11. Minimum disclosure requirements for number of customers with E&S performance gaps in portfolio

Scope	Number of High E&S risks customers for which subpar performance (performance gaps) has been identified (denoted by 'n'). Please refer to the methodology described above in section ‘ESG management at customer level’ on how performance gaps are defined.
Validation by external body other than the assurance provider (if applicable)	N/A
Unit	Number
2025	52
2024	54

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 High E&S risk customers for which subpar performance has been identified (denoted by 'n'). The outcomes shown below were compiled as part of FMO’s E&S performance tracking on a customer level (the methodology underlying this is outlined in table 11). These performance gaps have been summarized by theme in the table that follows which illustrates the high priority issues that still require attention.

Table 12. E&S performance gaps

E&S performance gaps	Risk type	Number of unique customers (n)		Description	Our engagement	ESRS topic
E&S performance gaps	Risk type	2024	2025	Description	Our engagement	ESRS topic
Willingness and commitment	PS1	7	10	Resistance to engage on E&S issues can stem from over-reliance on DFIs to drive ESG work streams. Commitment can waver due to financial, operational and contextual difficulties. Wavering commitment can have tangible implications on human rights and the environment, for example through delays in implementing management plans or community benefits, or in conducting specialized studies.	We use contractual leverage on specific E&S items, raise issues with customers’ top management and exert influence on their boards, e.g. to push for the improvement of organizational culture.	-
Environmental and social governance and budget	PS1	9	12	The customer’s leadership is not fully aware of and involved with E&S performance management, and/or has not allocated sufficient budget, resources, or time. Governance issues can result in poor protection of workers’ rights, a range of risks to communities, as well as damage to the environment.	We use contractual leverage and escalate the issue to top management. We may offer capacity building and advice on integrating E&S costs into financial planning and monitor frequently.	-
Identification and assessment of risks and impacts	PS1	8	6	Weak (initial and ongoing) identification and mitigation of risks. This can adversely impact human rights.	We provide customers with continuous engagement with our ESG staff and capacity building. If needed, we exert formal pressure, e.g., through withholding additional financing or triggering default.	-
Environmental and social management system	PS1	13	12	Since the assessment and management of E&S risks and impacts is part of a larger set of processes that the customer uses to manage its projects, the customer needs to deploy an environmental and social management system (ESMS) to warehouse and utilize such processes. A weak system hampers the ability to identify issues or risks, and through that to improve E&S performance, and so can lead to adverse economic, financial, social, and environmental impacts.	We support customers in the development and improvement of an ESMS.	-
Organizational capacity and competency	PS1	10	7	E&S teams can be too small, change often, continue to perform poorly, or lack qualified staff. This is an issue in countries where environmental legislation is developing, and/or state human rights policy and practice are weak.	We use contractual leverage, offer capacity building and look for competent staff in our network.	-
Stakeholder engagement, external communication, and grievance mechanisms	PS1	16	16	Trust and communication between FMO’s customer and its stakeholders are eroding or have broken down. Ineffective channels of communication play an important part here, particularly when grievances are insufficiently captured or redressed. Poor performance in this area can infringe on the freedom of opinion and expression, and even result in inhuman treatment, retaliation, and risk to lives.	We intensify our customer engagement, offer to connect customers to experts, mediate or provide capacity building.	S3 Affected communities
Voluntary land rights transfer	PS1	2	2	Customer needs to demonstrate that the buyer and the seller were both willing to transfer the land. Involuntary land transfer can be masked as voluntary, which can weaken community cohesion, cause tension between company and community and affect people’s livelihoods.	We engage with our customers to help them establish a land acquisition process that shows both the buyer and seller are willingly transferring the land.	S3 Affected communities
Working conditions and management of workers relationship (incl. third party workers)	PS2	14	15	Project workers working in substandard conditions, unaware of their rights or without access to grievance mechanisms. This can infringe on labor rights.	We discuss gaps with the customer, enable capacity building, and set conditions, e.g., by making disbursements conditional on improvement.	S2 Workers in the value chain
Occupational health and safety	PS2	10	12	Gaps in ensuring safe and healthy working conditions, possibly leading to serious injuries and fatalities. This could infringe upon the right to health and safety in the workplace, and the right to life.	We discuss gaps with the customer, enable capacity building, and set conditions, e.g., by making disbursements conditional on improvement.	S2 Workers in the value chain
Supply chain working conditions	PS2	3	2	When the customer does not monitor its primary supply chain, risks, or incidents affecting vulnerable groups are not adequately addressed.	We require customers with supply chains susceptible to high human rights or environmental risks to conduct a supply chain risk assessment. In some cases, they also need to develop a leverage plan and/or action plan to mitigate those risks.	S2 Workers in the value chain
Resource efficiency and pollution prevention	PS3	10	10	Projects reduce the availability of water in arid regions or pollution prevention measures are inefficient. This can infringe upon the right to life, the rights of the child and the right to live in a safe, clean, and healthy environment.	We discuss gaps with the customer, enable capacity building and set conditions, e.g., by making disbursements conditional on improvement.	–
Community health, safety, and security	PS4	9	9	Potential negative impacts to local communities are poorly managed, especially when security forces are mandated to protect personnel and assets. The increasing fragility of political environments across the geographies we work in makes this a complex area.	We discuss gaps with the customer, enable capacity building and set conditions, e.g., by making disbursements conditional on improvement. FMO can require a root cause analysis and corrective measures or redress.	S3 Affected communities
Land acquisition and involuntary resettlement	PS5	9	8	When resettlement and livelihood restoration plans are poorly managed or insufficiently recognize vulnerable groups and/or have ineffective grievance mechanisms. This can impoverish people and infringe on their right to an adequate standard of living, notably the right to food and adequate housing.	We find an expert to conduct gap analyses and implement recommendations. In the event of an early exit, FMO seeks to provide remedy to those impacted.	S3 Affected communities
Biodiversity conservation and living natural resources	PS6	9	14	Biodiversity potential negative impacts have not been modeled well enough or monitoring and mitigation are insufficient, or new findings are missed or ignored. This reduces biodiversity and access to forest products, thereby infringing on the right to food and/or an adequate standard of living.	We intensify customer monitoring, engage a biodiversity expert and use our leverage to improve the situation.	E4 Biodiversity and ecosystems
Indigenous Peoples	PS7	3	2	Community engagement processes do not meet FPIC requirement and/or do not allow for sufficient participation of Indigenous Peoples. In some cases, we recognize challenging operating conditions where risks to these communities are difficult to control. This may lead to the infringement of their right to food, traditions and sacred sites.	FMO encourages customers to meet FPIC standards, share benefits with communities, and include indigenous groups in livelihood restoration. We may intensify monitoring of contextual risk factors.	S3 Affected communities
Cultural heritage	PS8	3	4	Failure to protect cultural heritage. This can infringe on the rights of people to benefit from their and other people’s cultural heritage.	We use our leverage to improve the situation, looking at past and future risks.	S3 Affected communities
Financial intermediaries: Financial institutions and fund managers	–	22	18	Substandard system for identifying and managing E&S potential negative impacts of financed activities. Processes and procedures are unclear, E&S management responsibilities are insufficiently defined and/or capabilities are lacking, or inadequate E&S due diligence and monitoring is performed. This can be compounded by lack of exposure to and experience in E&S risks management by the financial sector and the lack of a level-playing field. This can lead to infringements of all types of human rights as referenced before.	We provide expertise and funding for the ESMS or sit on E&S risk management committees. We negotiate improvement plans and, in some cases, initiate or contribute to sector initiatives.	-

ESG performance target

While we monitor all negative impacts in our portfolio, FMO's ESG performance target is set annually for high-ESG risk customers contracted prior to 2025 (identified as the ‘target list’). The target list for 2025 includes high E&S risk customers and/or high CG risk customers for which the assessment has been approved in the current financial year. We register and monitor all IFC PS criteria and the CG criteria (the ESG Risks) potential negative impacts of our high-risk customers and aim to have at least 90 percent of ESG risks in our target list managed at an adequate level by our customers.

The 2025 results indicate that, on average, 95 percent of ESG 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. The target has been met, and the 2025 performance has improved from 94 percent in 2024, resulting from improved impact management by our clients, with a particular increase in performance of our FI portfolio.

Table 13. Minimum disclosure requirements for ESG performance target

Target level to be achieved and unit of measurement, and clarification whether target is absolute or relative (where applicable)	At least 90 percent of the ESG risks in our target list are managed at an adequate level by our customers
Scope of target	High ESG-risk customers. By consolidating customers within the same corporate group or group of companies, and excluding those in B Loans* or contracted in 2025, we created a target list of 304 customers. This is a slightly more extended scope than in 2024 (258 customers), due to enhancements made to the CG risk categorization framework. Moreover, this way, all high-risk deals (E&S and CG) are considered in the target list.
Baseline value	90% (annual target)
Baseline year	N/A
Application period	2025-2030
Milestones or interim targets	Annual targets are set as part of the annual business planning process.
Methodologies and assumptions	The target is calculated as the share of adequately managed ESG Risks amongst all ESG Risks assessed in the target list customers (see scope for target list). Ratings BB/BBB/AA/AAA represent adequate customer ESG risk management per criterion, whilst CCC/CC/D are deemed to be inadequate. Please refer to the section 'ESG management at customer level' for further details on the ESG risk rating methodology.
Target related to environmental matters is based on conclusive scientific evidence (if applicable)	N/A
Stakeholder involvement with target setting	The target has been set as part of the 2030 Strategy which has been discussed both formally and informally with key stakeholders during drafting, including the Dutch government being the key stakeholder and shareholder.
Changes in target	Target remains the same as in 2024 except the target list is redefined every year as described in the methodology (see also 'scope of target' above).
Performance 2025	95%
Performance 2024	94%
*FMO participates in 'B-loans', contractual arrangements where it has a sub-participation where another DFI/MDB manages the customer relationship. In these cases, FMO does not have a direct business relationship with the end recipient. In 2023, it was decided that, while FMO will continue to monitor B-loan performance, the results would not be included in our ESG target.

Evaluate and learn

FMO conducts evaluations to assess and learn from FMO’s performance against our committed (impact) objectives. At the portfolio level, we perform corporate evaluations to assess FMO's contributions to the SDGs, while for fund evaluations, we selectively choose specific investments for review. Evaluations help us to be accountable and to learn from the results that our financial and non-financial activities create in order to continuously improve.