Reputational risk

Risk appetite

FMO’s operations in developing and emerging markets exposes us to reputational risks such as environmental and social risks and various types of legal risks. FMO has a limited appetite for reputation risk when such risks would prompt key stakeholders to intervene in the decision making or running of our daily business. Outside of this FMO has a moderate appetite for reputation risk. As long as these activities at the outset have a clear expected contribution to FMO’s goal to achieve development impact, FMO may accept incidentally the risk of negative press coverage, NGO attention, client feedback, or isolated cases of financial losses. FMO cannot fully avoid such risks due to the nature of its operations, but chooses to mitigate them as much as possible through strict policies, upfront assessment and consultation with stakeholders, and when necessary, through agreements with FMO’s clients. FMO manages issues from the perspective of learning lessons and prevention. Through transparency and a willingness to respond to challenges, we aim to remain accountable and reduce our reputational risk.

Environmental, social and governance risk

FMO faces environmental and social risks in its emerging market projects. These risks stem from the nature of our projects, which in some cases could carry negative environmental and/or social impacts. Working in complex operational environments and non-ideal situations, FMO accepts there is a risk of negative press and/or negative reactions from NGOs in the context of ESG performance as long as the opportunity to create a development impact is clear and there are opportunities to mitigate the risk through environmental and social action plans and monitoring. The risk appetite for deviations from the exclusion list and human rights violations by projects financed by FMO is zero. We furthermore expect the highest standards in professional conduct. Internally, FMO strives to limit the footprint of its own workplace and strives to the highest standards in employee satisfaction.

Stakeholder management

Adequate management of relations with stakeholders (civil society, government, shareholders, investors, etc) is essential in managing FMO’s reputational risk and achieving the objectives of FMO in line with its mission. FMO’s mission is closely associated with our stakeholders and their expectations of FMO. Hence, stakeholder involvement represents an important factor in FMO’s strategy and the development of FMO’s risk appetite framework.