Investing in local prosperity

In the period up to 2025, we will focus on three SDGs across our focus sectors: Decent Work and Economic Growth (SDG 8), Reduced Inequalities (SDG 10), and Climate Action (SDG 13). Through our sectoral and geographic focus, we will contribute to SDG 8 across all our investments. We also set specific targets for 2017 on investments aimed at reducing inequalities (SDG 10) and green investments (SDG 13).

During 2017 we closed a total of EUR 3.1 billion in new commitments (2016: EUR 2.5 billion), estimated to support 900,000 direct and indirect jobs (2016: 812,000). With this performance we are on track towards doubling our impact (by doubling the number of jobs supported) by 2020 (baseline: 500,000 jobs). The closing of the Climate Investor One fund contributed to 34% of the jobs supported. Growth of new commitments in 2017 outpaced that of jobs supported. Lower growth of jobs supported is partly explained by a lower share of indirect investments in small and medium enterprises (SMEs). We assume that investments in SMEs support more jobs than investments in corporates; therefore, this had a downward effect on the supported jobs.

Another factor was the update of the macroeconomic data underlying the impact model we use to calculate indirect jobs. We updated the statistical data on economic structures, capital scarcity and labor productivity to ensure that the model reflects reality as much as possible. Because of economic progress, labor productivity tends to increase over time, which influences the calculations in our impact model. For more information on how we measure the impact of our new commitments, please refer to section ‘How we report’.

We made 41 investments that contribute to reducing inequalities, outperforming our target of 10 transactions for 2017. In particular, the financial institution and energy sectors made good progress. We made several loans to banks, earmarked to support women-owned businesses, for instance in Indonesia, and in Ghana we initiated a leadership program to better understand and support the needs of women entrepreneurs in Africa. In addition, we actively engaged with our clients in the financial institutions sector to prepare them for use of FinTech tools, providing the ‘unbanked’ with financial services. A particularly innovative transaction regarded our financing of a company in Uganda and Kenya that offers off-grid solar energy connections using mobile FinTech solutions. This approach allows unbanked people to obtain credit for buying their solar batteries.

Impact indicators

For many years we have focused on inclusive finance through microfinance, rural-based infrastructure and agriculture. Below we present estimated inclusive development figures for the companies and projects in our loan and equity portfolio.

Sector

Impact indicator

12/31/2017

12/31/2016

Financial Institutions

Number of SME loans

1,100,000

1,200,000

 

Number of micro loans

22,900,000

24,400,000

Agribusiness, food & water

Number of smallholders supported

1,400,000

1,200,000

Energy

Equivalent number of people served via power generation

33,000,000

31,700,000

The figures relate to the loan and equity portfolio per year end. Lower micro and SME loans are the result of divestments of large contributors, which had more micro and SME loans in portfolio combined than new Financial Institutions commitments. The number of smallholders supported in 2017 is higher due to new investments and increased reach of existing clients. The equivalent number of people served increased as more projects became operational and we are reporting on more energy projects invested in with PE funds than last year.

42% of total new commitments in 2017 concerned green investments, outperforming our target of 30%. The outperformance was mainly driven by strong performance of our investments in renewable energy projects. The results also benefitted from the updated energy strategy, which was broadened to also invest in off-grid energy and captive energy plants as well as transmission and distribution. In addition, we closed several green lines with our financial institutions clients. The strong performance on green investments translated into an estimated 1,600,000 tons of avoided GHG emissions (2016: 500,000). With this number we are well on track towards our ambition to halve our footprint (through doubling the number of avoided GHG emissions) by 2020 (baseline: 575,000). The high level of GHG avoidance in 2017 also follows from closing the Climate Investor One fund (making up for 37% of the total GHG avoidance), which is discussed in more detail in the section ‘Being the preferred partner’.

FMO published its updated sustainability policy in early January 2017, followed by a human rights position statement, a land governance position statement and a gender position statement, which are integral to our sustainability policy. FMO engaged intensely with various stakeholders before approval and publication of the sustainability policy and the policy statements. We made drafts available to and actively asked for feedback from the Dutch government, clients, partners, and civil society organizations.

FMO’s updated sustainability policy signals an explicit move away from a policy framework which only intends to mitigate negative effects of investments, instead steering towards investments that support the transition to a greener and more inclusive economy, supporting people at the base of the pyramid. It includes a pledge to contribute to limiting the global temperature increase to 2.0 or, preferably, 1.5 degrees Celsius.

To ensure compliance with applicable Environmental, Social and Governance (ESG) standards at project level, together with our clients we will decide on an action plan which should result in full compliance within a reasonable period. For 2017 we set ourselves the target to implement 90% of the actions due in 2017. By the end of the year 89% of actions due had been implemented. As of 2018 we implemented a new system to track and mitigate ESG risks in our investment portfolio. The system builds on FMO’s existing classification and mitigation of ESG risks to better monitor performance, helping to highlight the highest-priority risks in order to improve insight and focus resources.

In July 2017, FMO and Finnfund exited the Agua Zarca hydro-electric power project in Honduras. Our exit from the project intended to reduce international and local tensions in the area. The exit followed on the conclusions of the Independent Fact Finding Mission, that undertook a review of the project after the violent death of environmental activist Berta Cáceres, and the recommendations of the independent facilitator. In an effort to meet some of the development needs of communities in the area, FMO and Finnfund committed to making funds available for the realization of several projects for these communities.

In addition, on 16 November 2017, FMO published the compliance review by the independent expert panel (IEP) of our complaint mechanism regarding FMO’s investment in the Sendou power plant in Senegal. Although the IEP recognized considerable improvements by both FMO and the Sendou project company since the start of the project, it also identifies certain omissions by FMO during the due diligence phase prior to the project in 2009. According to the IEP, certain Environmental & Social items, especially community engagement, could have been considered more carefully by FMO. FMO acknowledged that, during the due diligence phase some key Environmental & Social items should have been considered more carefully and contextual risk should have been better analyzed. FMO has incorporated the lessons learned from this and other projects into our policies, and believes that the project company is on the right track with the strong support of its stakeholders, the Senegalese Government and the Lenders, and is taking the necessary actions in order to make the project fully compliant with the applicable standards once operational.