About this report

This integrated annual report covers activities that took place in or had an effect on the reporting year. The report covers the period from 1 January 2023 to 31 December 2023 and was published on 22 March 2024 on FMO’s website. The Annual General Meeting of Shareholders (AGM) is scheduled to be held on 24 April 2024.

The report is accompanied by one supplemental report: FMO's disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). This is not part of the assurance scope.

Presentation of information

This annual report of Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO) has been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRS-EU), and with Title 9 of Book 2 of the Dutch Civil Code. In addition, the non-financial information in this report has been prepared in accordance with the GRI Standards and by following the principles of the Integrated Reporting Framework. Furthermore, the annual report includes a disclosure on FMO's commitment to the Principles for Responsible Banking (PRB).

The Board Report consists of the chapters 'At a glance', 'Report of the Management Board', 'Report of the Supervisory Board', 'Corporate governance', 'Risk management', 'Materiality assessment and stakeholder engagement', 'External commitments', 'EU Taxonomy' and 'How we report'.

We strive to report transparently on our strategy, the way we implement it to create value for our stakeholders and the dilemmas we face along the way. The report provides a comprehensive overview of our financial and sustainability performance. Our reporting approach for the sustainability information is described in the chapter ‘How we report’.

Material topics

The materiality assessment is a formal process that aids FMO in identifying and assessing our impacts on the economy, environment, and people, and determining the organization’s material topics. The result of the assessment helps us decide what information to disclose in our annual report. The assessment further serves as input for our stakeholder dialogues and strategic plans. A detailed description of the approach and results are provided in the chapter ‘Materiality assessment and stakeholder engagement'. 

External assurance and audit

We have engaged Ernst & Young Accountants LLP to audit the consolidated and company financial statements, to perform a review of the sustainability information in specific chapters in scope, and to audit selected elements of this report. The scope, procedures, findings and conclusions from this engagement are summarized in the 'Independent auditor's report' and 'Assurance report of the independent auditor'.

Letter from the Management Board

From left to right: Huib-Jan de Ruijter, Fatoumata Bouaré, Peter Maila, Michael Jongeneel, Franca Vossen

Staying the course 

In 2023, the volatile global economic and geo-political circumstances were aggravated by more extreme weather conditions, food crises, the collapse of several major banks, the ongoing war in Ukraine, the war in Gaza, and Sahel coups. All with direct and prolonged, devastating effects on the well-being of entire communities, in particular in FMO’s geographies. This instability is often worsened by adverse financial factors in many emerging markets such as higher interest rates, high inflation, and increased sovereign debt.

Within this context, FMO's 50+ year mission becomes more relevant by the day: enabling entrepreneurs to increase inclusive and sustainable prosperity. Over the next decade, the World Bank estimates one billion young people — a majority living in emerging markets — will try to enter the job market. If they won’t be able to find decent jobs, this will leave millions without hope for a sustainable future. Our investments support jobs in local markets – around 990 thousand direct and indirect jobs in 2023 – and enhance access to energy, food and finance: crucial factors in breaking the downward cycle of poverty and migration.

Dutch companies can also spark new business opportunities in emerging markets, contributing to the SDGs by an often innovative way of working. We support them for instance through Invest International - as a 49 percent shareholder, and also by improving the investment ecosystem in promising markets, like Ethiopia. There, in 2023, FMO was the first investor in the financial sector, opening doors for other financiers and improving the financing circumstances for Dutch businesses.

To create more local investment opportunities, FMO is also fostering the new generation of entrepreneurs in emerging markets. We do this by building a new market creation pillar within FMO. Our aim is to help upcoming sustainable businesses grow to the level where they can absorb regular funding, first from us and ultimately from institutional investors. This will allow them to contribute to job creation, local prosperity and climate action on a larger scale. By providing technical assistance and investment partners, we will support the development of these currently unbankable, yet potentially impactful opportunities, into bankable and scalable businesses, starting in Africa. 

Maximizing our impact towards the SDGs is the foundation of FMO’s strategy towards 2030. This past year marks the first full year dedicated to implementing and working towards the 2030 goals. Staying the course, we had similar priorities as in 2022: growing impactful business, ensuring FMO’s foundations are solid, and organizational development.

Growing impactful business

FMO invests in three sectors, namely (1) Agribusiness, Food and Water, (2) Energy, and (3) Financial Institutions. This allows us to combine climate action with socio-economic goals, focusing our impact on SDG 8 (Decent Work and Economic Growth), SDG 10 (Reduced Inequality) and SDG 13 (Climate Action).

In 2023, we supported our customers with approximately €2.7 billion in total new investments (2022: €2.4 billion) of which €1.9 billion was made through FMO, €258 million through public funds, and €528 million through direct mobilized funds (2022: €1.8 billion, €153 million, and €457 million respectively). At €13.2 billion, our total committed portfolio remained roughly the same as last year due to the level of loan repayments and exits in our portfolio as well as the negative effects of the EUR/USD exchange rate. Some of the highlights per sector are:

• Agribusiness, Food and Water – rolling out our local for local food agenda (Limbomar and Limbopack in Ecuador) and green financing agenda (Merensky Timber in South Africa). 

• Energy – Expanding into areas beyond renewable energy generation with battery storage (Walo Storage in Senegal) and commercial and industrial/rooftop solar solutions (GreenYellow Smart Solutions Vietnam). 

• Financial Institutions – onboarding more tech-enabled players (Cash Plus in Morocco) and continuing to roll out our risk-sharing solutions with traditional banks (Araratbank in Armenia). 

To steer our portfolio, we label investments that directly contribute to Reduced Inequalities (SDG 10) and Climate Action (SDG 13). With respect to reducing inequalities (RI), our overall RI-labelled total committed portfolio amounted to €4.3 billion, achieving €1,140 million in RI-labelled total new investments in 2023 (2022: €810 million), a strong increase despite challenging global circumstances. Contributing to climate action, our Green-labelled total committed portfolio amounted to €4.7 billion. This was, among others, driven by further growth in Green-labelled total new investments which came in at €1,091 million (2022: €1,003 million).

We were grateful to see the recognition at and after COP28 of the SDG Loan Fund, an innovation widely praised as a leading example of the mobilization of private capital. The fund unlocks around US$1 billion institutional capital towards the SDGs through a unique blended finance cooperation, set-up by Allianz, MacArthur Foundation, and FMO. We hope and expect other institutional investors, DFIs, and foundations to replicate this initiative, contributing to impact that would otherwise not be possible.

Following the launch of our Climate Action Plan, in 2023 we rolled out the required actions. This included work streams dedicated to further developing our Paris alignment approach, our data strategy, KPIs for our climate strategy and preparing to operationalize our climate risk approach. We made strong progress on all work streams and expect most to be ready for operationalization in early 2025.

Strengthening partnerships is an essential part of our strategy. In recognition of the success of two previous European Commission guarantee programs (NASIRA and FMO Ventures Program), we have received approval for three new proposals that are currently in the contracting phase. The Dutch government also strengthened its support to the funds we manage on its behalf: DFCD received a €40 million top-up, Access to Energy Fund €40 million and MASSIF €69 million plus €22 million specifically allocated to market creation.

In October 2023, we organized the Future of Finance event, with UN Secretary-General's Special Advocate for Inclusive Finance for Development Queen Máxima and Klaas Knot, Chairman of the Financial Stability Board, as keynote speakers. Following the success of this event, we hosted the Future of Energy in Amsterdam in February 2024. Following the pandemic, we highly value these opportunities to meet up with clients and partners in person and to exchange views and best practices firsthand.

Ensuring a solid foundation

Over the year 2023, our net profit amounted to €65 million (2022: €1 million). Looking at our regular income, based primarily on dividend and interest payments, we were well in balance with our operating expenses. Loan provisions were materially lower than last year, then largely impacted by exposures in Ukraine, Sri Lanka, and Myanmar. The overall trend in the EUR/USD exchange rate had a negative effect on our net profit due to foreign exchange losses recorded on our investment portfolios. The non-performing exposures ratio was 9.8 percent (2022: 11.9 percent). The Common Equity Tier 1 (CET-1) ratio was 22.0 percent (2022: 23.8 percent), with the movement driven primarily by regulatory changes impacting the calculation capital requirements. Combined with our impact results, these are positive numbers in a highly volatile environment.

Last year, the agreement between FMO and the Dutch State, which formalizes our mandate, was renewed for the first time since 2009. The key principles of this agreement remain the same, just like FMO’s AAA rating, mirroring the ratings of the Dutch State.

To ensure FMO continues to comply with regulations, several work streams and projects are currently underway. For instance, we are in the process of implementing the Corporate Sustainability Reporting Directive (CSRD) and we intend to align with the European Central Bank's expectations for climate-related and environmental risks in 2024. We will be required to publish our first report in accordance with the CSRD and Pillar III in 2025.

In August of 2023 we reported that, as a result of late notifications of unusual transactions to the Financial Intelligence Unit (FIU) in 2021 and 2022, DNB decided on enforcement measures. DNB is currently re-assessing these measures upon request of FMO (by means of objection). FMO’s related Financial Economic Crime (FEC) framework enhancement program – which involved a full KYC file remediation – was finalized at the end of 2021. During 2023, FMO focused on continuous improvement of its FEC framework, through (amongst others) periodic review of policies and procedures, training, and monitoring of performance.

Organizational development

To increase our impact and meet the expectations of our stakeholders, we continued to strengthen and streamline our organization. The recruitment of new colleagues progressed well despite a challenging labor market, and we prioritized employee wellbeing and engagement. We are implementing an agile way of working in several domains. We also launched our values and updated behaviors, which marks the beginning of a multi-year program to further empower our colleagues to maximize impact.

The classification of FMO as a ‘World Class Workplace’ by Effectory, which conducted our bi-annual employee engagement survey, reflects the improved engagement levels and work satisfaction. Our employees are proud of our vision and goals, as well as the atmosphere and trust within their team. Efficiency remains the most important area for improvement and is high on our agenda. We would like to take this opportunity to thank our staff for their dedication to our mission, their commitment, and all the impactful work they have done in 2023.

Looking ahead

Staying the course, in 2024 we will focus on the three same priorities as in 2023, continuing our work towards our 2030 goals. With regard to growing impactful business, we aim to further increase new investments in Reduced Inequalities and Green. We will take the next steps in market creation, supporting the new generation of entrepreneurs.

With the fragile global economic and political situation in some of our markets, we do realize our financial result can be volatile and further growth to maximize our impact will be challenging. But given the immense climate challenge that lies ahead and the huge investments that are needed to support job creation and overall economic development in emerging markets, we see it as our role to be countercyclical and focus on the long term. We invest when others shy away, always with our mission in mind: enabling entrepreneurs to increase inclusive and sustainable prosperity.

Fatoumata Bouaré, Chief Finance & Operations Officer
Franca Vossen, Chief Risk Officer
Huib-Jan de Ruijter, Co-Chief Investment Officer
Michael Jongeneel, Chief Executive Officer
Peter Maila, Co-Chief Investment Officer

External environment

The world around us is constantly changing. Social, environmental and economic effects resulting from persistent challenges require not only our customers but also FMO and its partners to become ever more resilient and adaptable to turn these challenges into opportunities to create positive change. 

This chapter outlines the most relevant external trends and developments that affected the way we do business and our ability to achieve our strategic ambitions towards the Sustainable Development Goals (SDGs).

Global trends affecting our markets  

Increasing geopolitical tensions and instability

Heightened geopolitical tensions in certain regions have impacted the markets in which we invest. This included the ongoing war in Ukraine, new emerging conflicts in Sudan and Niger and the ongoing civil war in Myanmar. In the Middle East, the war in Gaza has raised concerns about the situation further escalating in the region. FMO remains vigilant in monitoring these situations and ensuring we provide the necessary support to our customers amid these challenging circumstances.

Economic growth fueled by strong debt issuance

FMO aims to maximize its contributions towards SDG 8, Decent Work and Economic Growth. Global debt, including borrowing by governments, households and businesses, reached an all-time high.1 Factors that have driven high sovereign debt levels in recent years, particularly in developing countries, include the need for increased public spending to tackle the global pandemic, the cost-of-living crisis and the effects of climate change. This is further exacerbated by an unequal access to finance, higher interest rates, currency depreciation, and sluggish growth. According to the IMF, more than half of low-income countries are at risk of distress or are already in distress.

The IMF estimated a decline in global growth from 3.5 percent in 2022 to 3.1 percent in 2023. Growth in emerging markets and developing economies was estimated to remain at 4.1 percent. There were notable regional differences, with growth in emerging and developing Asia at 5.4 percent, mainly driven by India (6.7 percent). For low-income countries GDP was estimated at 4.0 percent.2

In low- and middle-income countries, the slower than expected economic rebound and cost-of-living crisis had a downward pressure on job decency and real wages and increased the risk of poorer households slipping into poverty. In its 2023 report the ILO warns that working poverty is on the rise in low-income countries, meaning that employed people live in households that fall below the poverty threshold.

Inequalities remain high

FMO continues to see a need to focus on SDG 10, Reduced Inequalities. The pandemic has exacerbated income inequality globally, marking the most significant rise in three decades. Furthermore, after 25 years of decline, the number of people living in poverty is again on the rise. Particularly in low and lower middle-income countries, income gains for the bottom 40 percent have been sluggish, contributing to a widening income gap between the poorest and wealthiest nations (between-country inequality).

With regards to between-country inequality, least developed countries (LDCs) are among the low-income countries that are most often faced with severe structural impediments to sustainable development. In recent years, LDCs have experienced a sharp slowdown in economic growth as they are less equipped to absorb the effects of recent crises related to the pandemic, climate change, geopolitical tension and inflation. In 2023, the combined GDP of LDCs was estimated to be 10 percent lower than was projected before the pandemic. This is estimated to have resulted in 15 million more people living in extreme poverty compared to 2019.3 The International Institute for Sustainable Development reports that while foreign investments in SDG-related sectors in developing countries increased by 70 percent in 2021, the share of investments flowing to LDCs dropped from 19 percent in 2020 to 15 percent in 2021.4

With regards to within-country inequality, income gains for people among the bottom 40 percent of the income distribution living in low and lower middle-income countries continue to lag. People within this group often deal with a plethora of other challenges that hinder their long-term social and economic development, including lack of access to electricity, food security and decent work. At the same time, technological developments such as digital ID, fintech, and cell phone usage offer opportunities to provide basic services to improve people's livelihood.


Climate change will undermine SDGs if not urgently addressed

Climate action continues to be high on the agenda for FMO. In 2023, we experienced the hottest year on record and were again faced with extreme weather events, resulting in loss of life and biodiversity and entire communities being affected. Climate change, including increases in frequency and intensity of extreme weather events, reduces food and water security, hindering efforts to meet the SDGs. For instance, in the Horn of Africa, more than 300 people lost their lives due to severe flooding following a three-year drought, which left millions facing food shortages. Similarly, in Libya, prolonged heavy downpour resulted in the collapse of three dams, claiming the lives of 3,400 people and displacing many others.5 Unfortunately, such events are becoming more common.

At COP28, the ‘global stocktake’ of the world’s efforts to counter climate change concluded that “progress was too slow across all areas of climate action”.6 In response, commitments were made by countries to speed up climate action. A clear signal was given to transition away from the use of fossil fuels in energy systems in a just, orderly and equitable manner, although no agreement was made to fully phase out fossil fuels. In addition, it was made clear that the negative effects of climate change are not borne equally. Poor and marginalized people are more likely to be adversely affected by extreme climate events and the potential negative social impacts of transformation to a low or zero carbon economy. There was a clear call for more progress on adaptation and financial support towards poorer countries. The Loss and Damage Fund was established to help developing countries cope with losses incurred by adverse climate events.

Funding for the SDGs is hampered by a lack of bankable projects

Achievement of the SDGs and the objectives of the Paris Agreement require an additional US$4.2 trillion in investments each year. However, there is lack of investment-ready bankable projects. And while there is ample DFI liquidity, overall liquidity is falling short. This means private investors need to step in, in particular as risk capital for emerging markets is falling short. In addition, there is a need to unlock market potential which requires taking risks and moving away from more traditional business models. In 2023, several reports suggested a revision of the funding models of multilateral development banks (MDBs) and DFIs so they can take on more risk.7 DFIs can increase the level of risk in their portfolios without recourse to new capital injections or increased use of external concessional resources.8

New technologies enable development impact but also pose new risks

Over the past decade, emerging technologies have given rise to new business and delivery models. In addition to improving productivity and lowering marginal costs, new technologies can have a strong development impact. At the same time, new technologies give rise to risks and raise ethical questions. The use of artificial intelligence (AI), for instance, has become more popular among individuals, businesses and governments. By January 2023, ChatGPT had become the fastest-growing consumer software in history. Driven by advances in large language models, AI can help people work more productively but poses threats to (cyber)security and privacy. Researchers have cautioned that AI could widen the productivity and innovation gap between and within countries. High-skilled, high-income workers and larger corporations may benefit more from the adoption of AI, increasing their capital returns and labor income9, and developed countries are more likely to be early adopters. This might create a competitive advantage and increase inequalities between countries that will be difficult to overcome.

Sector developments

In the agribusiness, food and water sector, high food prices continued to affect global food security. Around 30 percent of the global population experience moderate to severe food insecurity10 caused by the ongoing war in Ukraine. In addition, extreme weather events have severely impacted agriculture production. Yet, finance to support sustainable agriculture, climate-resilient agri-food systems and biodiversity conservation has diminished in recent years.11

In the energy sector, clean energy projects were hampered by inflation, supply chain bottlenecks and rising interest rates, particularly in developing countries, where capital is more expensive. The debt crisis faced by many of them put an additional strain on the roll-out of energy projects, limiting the ability of public entities to enter into power purchasing agreements, which can be a source of hidden public debt. On the other hand, the global energy crisis in 2022 is believed to have been a turning point, highlighting the sense of urgency to enhance policy support for and reduce costs of a clean energy transition. To further stimulate this transition, rapid developments in clean energy technologies, such as green hydrogen, could become a viable option for storing energy from renewables.

In the financial market, a meltdown of three regional banks in the US caused turbulence in the US and European banking sector, but the crisis was contained. At the same time, recovery from the pandemic progressed, albeit at a slower pace than expected. With commodity prices decreasing and with fewer supply chain disruptions, inflation started to ease in 2023.12 The IMF noted that interest rate hikes did not lead to rising repayment defaults, as borrowers might have used savings or repayment delays, but the overall debt repayment capacity diminished. Demand for loans decreased globally and loan standards tightened, due to higher funding costs of financial institutions, a weaker economic outlook, and borrower risk perception. Although banks continued to be profitable, net interest margins came under pressure as a result of higher funding costs. At year end, projections were pointing towards a ‘soft landing’ by bringing inflation down without a major downturn of economic activity.12 Developing countries have seen weaker recoveries. Low-income countries struggle most, often aggravated by higher interest rates and depreciated currencies.

Expanding regulations that impact FMO

Financial institutions are required to responsibly manage the impact of their operations and value chains on the environment and local communities. Regulators and supervisors are continuously updating standards and setting new ones for companies to adhere to. In this section, we highlight the most important changes and updates to some of the regulations that (are likely to) impact FMO.

Basel IV

The EU’s new legislative package on the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD) is aimed at implementing the Basel III (also known as Basel IV) standards within the EU. The legislative procedures are in the final stages and expected to be implemented with a phase-in approach starting from 2025. The draft text published in October 2021 and amended in February 2022 proposed a higher risk weight for equity investments. FMO will also be required to apply a higher capital charge for some types of credit risk exposures and for market risk. Further information is provided in the ‘Risk management’ chapter.

Climate and environmental related impacts and risks

In 2020, the European Central Bank (ECB) published guidance on the safe and prudent management of climate and environmental related risks. A review conducted by the ECB in 2022 showed that banks were far from adequately managing climate-related and environmental impacts and risks and require them to fully meet expectations by the end of 2024. The ECB also published a collection of good practices. Since 2021, FMO has been integrating climate and environmental related risks into the bank’s governance, strategy, risk management framework and disclosures in line with the ECB expectations. We expect to complete this work by 2024. Further information is provided in the ‘Risk management’ chapter and in the separate Task Force on Climate-Related Financial Disclosures (TCFD) report published on our website.

Corporate Sustainability Reporting Directive

The Corporate Sustainability Reporting Directive (CSRD) entered into force in 2023, which revises and extends the requirements of the previous Non-Financial Reporting Directive (NFRD). As a large public interest entity, FMO is in scope of the NFRD and will be among the first group of companies required to implement the CSRD. FMO and other companies subject to the CSRD will be required to report according to the European Sustainability Reporting Standards (ESRS). FMO will issue its first report following the ESRS in 2025, for the 2024 financial year. In 2023, FMO continued monitoring the developments and has been preparing towards the implementation of the CSRD and ESRS as part of the EU Sustainable Finance project.  

EU Taxonomy

In 2020, the European Commission introduced a taxonomy for sustainable activities. This is a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and broader environmental goals other than climate. The regulation is still in development. From 2023 banks are required to report their level of Taxonomy alignment with the first two environmental objective as well as Taxonomy eligibility on all six environmental objectives. Refer to the ‘EU taxonomy’ section for further information.

Our value creation model

Our value creation model is based on the Integrated Reporting Framework. The model demonstrates the process through which we allocate financial and non-financial capital (resources) and how, through our activities, we intend to create value over time (outputs, outcomes and impact) for our stakeholders.

Operating context

Since 1970, FMO has made a positive difference by enabling entrepreneurs in low- and middle-income countries to build a better world. We create long-term value by investing in the private sector, addressing climate change, reducing inequality and supporting (in)direct jobs. 

Our mandate

FMO was established to provide financial services that the commercial market does not (sufficiently) provide, or which are only offered on terms that do not fit into a solid business model. We do this without crowding out private parties.

Therefore, our investment decisions are guided by three principles: 

1. Additionality: We offer financial services to the extent that the commercial market does not or does not sufficiently provide them, or which are only offered by the commercial market on terms that do not fit in a solid business model. In addition, we may demonstrate additionality through our contributions to higher environmental, social and governance (ESG) standards that are not customary in the local market, thereby achieving a transformation effect. 

2. Mobilizing: We attract as much additional private sector funding as possible to maximize our development value. We also deploy our expertise to enhance development value with public funds. 

3. Good governance: We apply the principles of good governance within all areas of our business operations. 

We invest in emerging markets and developing economies that are often characterized by a fragile private sector, little job security and/or high poverty rates. Our customers operate in volatile markets that are significantly impacted by macroeconomic trends such as increasing commodity prices and foreign exchange fluctuations. We engage with our customers before and during the lifetime of an investment to understand their context and risks. This enables us to offer products and services that suit the needs of our customers. In turn, they embark on a long-term journey with FMO towards enhanced social, environmental and governance practices to foster impact and sustainable change. 

Where we operate

Diversification is key to our risk management approach and allows us to limit the volatility of our portfolio. We invest in 80 countries across four regions: Africa, Asia, Europe and Central Asia, and Latin America and the Caribbean. We invest in sectors in which we can take a leading role and develop strong relationships, and that we believe are crucial for supporting decent jobs (SDG 8), supporting equality between and within countries (SDG 10) and reinforcing climate action (SDG 13).

The sectors we focus on

We also finance other sectors indirectly through our investments in financial institutions, and private equity (PE) funds.

Our business model

Resources 

Value creation starts with the resources or ‘inputs' that are key to running our business: 

• Human | We have a professional, skilled and international workforce. At the end of 2023, we had 803 employees, representing 72 nationalities. In addition, we employed 181 external professionals. Our employees are passionate about our mission and are expected to embody our values; 

• Intellectual | We are recognized as a leading impact investor, and for our in-depth knowledge of financing and ESG management in emerging markets and developing economies. This makes us an attractive business partner and enables us to secure public and private funding;  

• Financial | We have a strong capital base and triple-A ratings. This allows us to obtain funding at attractive rates. Commercial investors supply capital through FMO's (sustainability) bonds; 

• Networks and partnerships | We have strong partnerships and networks of customers, knowledge institutes, NGOs, governments and financial partners such as commercial investors and banks. 

In addition, we work with suppliers that provide goods and services. We only want to work with trustworthy suppliers and have put in place a due diligence process in line with the Dutch Anti-Money Laundering and Anti-Terrorist Financing Act (Wwft). This process applies to new or existing suppliers related to our main activities, such as consultants, legal advisors, government intermediaries and/or providers of critically outsourced services. This is set out in FMO’s Procurement and Outsourcing Policy.

FMO’s business activities

Through the following business activities and interactions with others, FMO transforms resources into outputs that, over the short, medium and long term, create value for the organization, its stakeholders, local society and the environment.

We provide finance | We offer long-term financing and, when possible, provide funding in local currencies to mitigate the exchange rate risk of our customers. This includes: 

• Offering direct medium and long-term loans at both fixed and variable interest rates, with a repayment grace period where needed; 

• Investing equity directly or indirectly (through private equity funds) or co-investing with partners. We provide stable, long-term capital and usually sell our stake after five to ten years. We receive dividends and accounts for fair value gains or losses during the lifetime of an investment; 

• Structuring guarantees that meet the needs of the (end) beneficiary, the market and the targeted creditors. 

We blend and mobilize finance | On behalf of governments and multilateral organizations, we deploy public finance in higher-risk projects and programs. Such finance helps to reduce and share risks. Private and institutional capital will then be more easily attracted towards scalable but higher-risk investments that otherwise would not have been considered by commercial investors. We arrange syndicated loans by bringing together commercial banks, investors and other DFIs to raise larger financing amounts in an efficient way to scale up our impact. Commercial investors have access to FMO’s expertise in impact investing in emerging markets and developing economies. FMO Investment Management provides services to several funds with different market-based, risk-return profiles to accommodate different investor risk appetites. We receive a fee for providing these services.  

We actively promote impact, ESG principles and generation of value | Our suite of services includes advisory support and technical assistance, aimed at assisting clients in establishing sustainable and profitable enterprises. This encompasses guidance in designing and implementing ESG risk mitigation measures, conducting master classes and events, facilitating capacity development, and spearheading sector initiatives. 

We (help others to) innovate | By fostering innovation, we encourage and participate in the evolution of new approaches, business models, and products that possess the potential for heightened impact and scalability. We enable market ecosystem development and strengthen customer business development through strategic collaborations with partners. 

Value creation

We distinguish between short term outputs, resulting directly from our activities, and the outcomes that we believe to result from those outputs. The long-term impact refers to the indirect results we believe our work will contribute to over time. We recognize that each stakeholder group has different expectations and a different interest in what we do as an organization, which will influence the (perceived) value we create for them.

For example, we adopt a balanced approach in our investments and risk-taking, allocating different sources of capital in accordance with our risk appetite. This generates financial returns and a diversified portfolio that allows us to maximize impact by growing our business, which serves the interests of our employees, investors and shareholders. Through our investments and partnerships, we create value for our customers and, indirectly, for the local communities, customers, and suppliers within their markets. It is through these activities that we contribute to long-term impact for all of our stakeholders. In addition, we create value for our employees by offering fair and equal pay, benefits and career development opportunities to ensure we attract, develop and retain skilled employees who are engaged and committed to FMO’s mission.

Creating long-term impact through working with our customers 

We aim to maximize our impact by leveraging the synergies and managing the potential trade-offs between the SDGs we focus on. We have translated this into three long-term development impacts in emerging markets and developing economies that we believe our activities contribute to. In addition, we aim to minimize the negative impacts that may occur as a result of our activities.

A more inclusive, resilient, responsible, and sustainable private sector | To contribute towards a more inclusive private sector, we invest in countries where other investors perceive risks as too high, including LDCs and fragile states. In addition, we encourage our FI customers to increase access to finance to marginalized groups, women in particular. By providing financial capital and expertise, we aim to support customer resilience during economic downturns as well as navigate the adverse impacts of climate change and other uncertainties. We enable our customers to be more responsible and sustainable by supporting the implementation of (improved) ESG risk identification and management and the adoption of responsible business practices within their operations. We believe these activities lead to more robust and resilient customer operations, which in turn enables them to attract additional (commercial) capital and further grow their businesses. Furthermore, we support business ideas that have not yet matured to a commercial phase and strengthen private sector ecosystems to develop more sustainable businesses and scale up impact.  

Improved livelihoods, including for the people in the bottom 40 percent of income distribution, increased gender equality, thereby reducing poverty | We focus on three areas to improve livelihoods of the people in our markets. First, we invest in increased access to goods and services – such as food, finance and electricity – and thereby in income-generating opportunities. Second, we support our customers in growing and/or sustaining the number of jobs in their own businesses as well as in the wider economy, and we encourage them to improve the quality and inclusiveness of those jobs. Third, by investing in climate adaptation and resilience, we aim to protect and strengthen livelihoods from the adverse impacts of climate change. We believe that our approach can be particularly beneficial to the most vulnerable groups such as women, people belonging to the bottom 40 percent of income distribution, and those living in countries that are characterized by a higher proportion of (extreme) poverty. 

A transition towards low-carbon and climate resilient economies in a just and inclusive way and protecting and promoting biodiversity | Climate change poses a threat to people’s livelihoods and to the wider efforts to meet the SDGs. For this reason, we aim to contribute to a just and inclusive transition towards low-carbon and climate resilient economies. We focus on green investments and help to reduce the environmental footprint of our customers and their value chains through energy solutions, forestry and customer engagement. In addition, we target investments on climate adaptation to support our customers to mitigate physical climate risk and to reduce the impact of climate change on their activities. Through our ESG activities, we work with our customers to improve risk management practices, recognizing the linkages between climate, environment, and social risks.  

Minimizing negative impact | We acknowledge that the projects in which we invest may have potential negative impacts on the environment or on people. For example, whilst a hydro power investment provides clean energy, supports economic growth and improves lives overall, it may require the resettlement of surrounding communities. The ESG standards we expect our customers to apply are intended to identify, evaluate and mitigate key environmental and social risks as well as the negative impact of their activities. Furthermore, we require certain customers to put in place a grievance mechanism and to respond to community concerns. 

Our investment process

Before and during the investment period, we research the financing opportunity. We evaluate its financial risk and assess its potential impact on the environment, employees and workers, communities and other stakeholders.

In this section, we explain the key steps of our investment process and the key factors that are considered throughout. For more information on our risk management, refer to the 'Risk management' chapter. For information on our responsible investment policies and guidelines, refer to our website.

External events affecting our investment process

Several external events affected our investment process. As a result of the ongoing war, our customers in Ukraine continued to face adversity. The impact on our financial results this year, however, was limited as impairment levels and valuations in 2022 proved adequate. Throughout the year, we continued to work with our customers to find suitable solutions, including loan restructuring.

After the devastating earthquakes in Turkey and Syria in February 2023, we reached out to all of our customers in Turkey. We have no exposure in Syria. Several customers have exposures in the wider area affected by the earthquake, but this did not result in any reclassification of our credit risk. 

Following the war in Gaza and rising tensions in the Middle East, we assessed the impact on our customers in the region. Although FMO’s direct exposure in the Palestinian territories is limited, we will continue to monitor the situation closely in 2024.

We continued to monitor the situation in Sri Lanka and Myanmar. Both countries experienced economic and political instability in 2021 and 2022, respectively. Since then, the situation has improved in Sri Lanka and all customers were able to meet their payment obligations. The situation in Myanmar remained unstable, and average impairment levels in 2023 increased to reflect increased likelihood of customers not being able to honor their debt obligations. Furthermore, we continued to manage portfolios in countries faced with (partial) sovereign defaults and convertibility issues, such as Pakistan, Ghana and Argentina. We monitor these portfolios intensely and will change the investment approach when needed.

Know your customer

FMO runs the risk of becoming involved in money laundering, financing terrorism and financing sanctioned entities or customers with a bad reputation. To mitigate such risks, we follow policies and procedures that deter criminal activity and ensure we do business with reputable customers. We evaluate our policies and procedures on an ongoing basis, enabling the investment departments to conduct in-depth customer due diligence in line with evolving applicable laws and regulations. 

FMO plays an important role as gatekeeper to help prevent financial economic crime (FEC) and preserve the integrity and reputation of the financial system. We only want to deal with customers of good standing. Therefore, we obtain and monitor information and documents concerning the identity of a customer, gain insight into the business and its structure and assess customer integrity risk holistically. Referred to as Know Your Customer (KYC), this is an integral part of the investment process and the customer relationship throughout its lifecycle. We work in countries where, at times, it is hard to obtain and verify documentation and information. Nevertheless, FMO has a robust FEC framework in place, which complies with national and international FEC and KYC standards.

In 2023, we increased the number of employees involved in KYC in both the first and second lines. In the first line, a specialized KYC Department supports and works closely with the investment teams that have customer contact and are responsible for the comprehensive risk assessment of the customer. The Compliance department, forming the second line, maintains compliance oversight and provides mandatory advice in case of high-risk customers and other situations.

New employees receive training on the prevention of FEC, as well as other integrity awareness training during their first weeks at FMO and yearly Integrity refresher trainings are mandatory for all employees. In 2023, we continued to provide additional mandatory training including on bribery and corruption and combating terrorism financing. A monthly KYC learning track shares knowledge and maintains awareness regarding the specific risks in FMO’s markets.

In 2022, we conducted an integrity risk assessment on our equity fund investments following DNB's recommendation and executed an action plan to address the risks identified. In 2023, we improved our due diligence practices for new fund investments, increased risk awareness and deepened our understanding of implementing KYC policies by fund managers. In 2024, we will implement our enhanced due diligence standards in our existing fund portfolio in a risk-based manner and further support our customers in improving their KYC practices. This will mitigate our risks and expand our role as gatekeeper.

ESG value creation

Through our environmental, social & governance (ESG) engagement we intend to create opportunities for positive impact across the SDGs while mitigating potential negative impacts of our investments. Our ESG principles and practice have evolved to a discipline operating at the intersection of risk management, positive impact, and customer value creation. We identify dilemmas or issues, establish collaborations and partnerships, utilize technical assistance, provide trainings, and engage with customers or sectors aiming to shift mindsets or approaches. These efforts enable us to influence customer practices or potentially entire industries. Customers which elevate their ESG practices and demonstrate positive outcomes can transform business operations and may improve access to funding.

FMO has adopted the IFC Performance Standards (2012) as its operating standard. In 2016, we launched the Sustainability Policy Universe, a framework of documents and tools that guides us around environmental and social (E&S) impact management and in improving the corporate governance of our customers. Our Sustainability Policy was approved by FMO’s Management Board in 2016. The policy is complemented by position statements on human rights, land governance, fossil fuels and coal and on Impact and ESG for Financial Intermediaries. We are further guided by the United Nations Guiding Principles on Business and Human Rights (UNGPs), the OECD Guidelines for Multinational Enterprises and the Client Protection Principles.  

Our policies and position statements, available on our website, undergo targeted and public consultation with various stakeholder groups during the development process and are formally approved by the Management Board. 

ESG risk management

ESG risk management is a fundamental part of our investment strategy. Customer selection is evaluated on potential ESG risk exposure and client capacity on and commitment to manage the E&S impacts and risks associated with its operations. Continuous monitoring and improvement of the ESG performance of our customers is crucial to creating value.

Both E&S and corporate governance (CG) specialists are part of the deal teams to assess customer performance to identify risks and opportunities for improvement. E&S specialists are involved in all high E&S risk transactions through screening, due diligence, contracting and transaction monitoring. In addition, CG specialists are involved in high corporate governance risk transactions. Investment staff are responsible for managing low and medium risk transactions. An independent team of E&S specialists review these assessments and provide an independent opinion on the suitability of an investment. Following a positive investment decision, ESG requirements are included in a customer’s contract. We monitor the implementation of ESG actions throughout the investment period by regular contact and site visits, often supported by independent consultants.

In 2023, we implemented our updated disclosure policy. Disclosure and stakeholder feedback are integral to our ESG risk management. By enabling stakeholders to provide feedback or additional information, we can make inclusive investment decisions, enhance the design and implementation of projects and policies, and strengthen development outcomes. Disclosures of proposed (high E&S risk17) investments are provided in six languages. This levels the playing field, helps to increase impact, and leads to efficiencies for customers working with multiple DFIs.

As we seek ways to improve our customers’ ability to mitigate and manage ESG risk, we believe we have a role to play as ESG change agent. In 2023, we developed a free online environmental and social management system (ESMS) toolkit for financial intermediaries. This empowers banks and financial institutions to manage ESG risk on both transaction and portfolio levels. Furthermore, we organized a masterclass in Kenya for African private equity funds to share ESG best practices. In addition, FMO hosted the Autumn ESG and Development Effectiveness Network Event for the Association of European Development Finance Institutions (EDFI). 

Human rights

The protection, promotion and respect of human rights is integral to sustainable development. While human rights are enshrined in various laws, businesses can sometimes undermine these rights through their action or inaction, especially in countries where ESG conditions are generally less favorable.

FMO’s ESG risk management approach is rights-based. We include perspectives of employees, affected communities and other stakeholders (or right-holders) in customer due diligence and engagement processes and take adequate measures to strengthen customers’ ability to respect human rights.

FMO invests in a wide range of activities. In recent years, we performed an in-depth analysis of human rights issues in each of our investment portfolios, resulting in the identification of the following five salient human rights issues, which can be interlinked:

• Right to life | Avoid workplace and community fatalities related to customer activities, e.g. workplace accidents, traffic accidents, and threats and oppression of critics and opponents.

• Right to decent work | Respect labor rights, wages, occupational health and safety, workplace accommodation, and family life.

• Rights of vulnerable people | Ensure that vulnerable individuals or groups are identified and their rights are respected.

• Right to an adequate standard of living | Ensure adequate food, housing, water, sanitation, education, good governance of tenure of land, fisheries and forests.

• Right to not being subject to cruel and inhumane or degrading treatment | Ensure protection from rights violations related to project security.

FMO considers human rights issues salient when they have the most severe negative impact on people through our customers’ activities or business relationships. The chapter 'Performance against our strategy' provides further insights on the current performance of our high E&S risk portfolio, broken down by applicable IFC Performance Standard, and an overview of our portfolio’s performance gaps, including a description of how rights-holders may be affected.

FMO has developed human rights due diligence guidance, which supports our E&S staff in applying a human rights lens throughout the investment process. This guidance covers contextual risk18 analysis, a broad community support check, a Free, Prior and Informed Consent (FPIC) check and a land rights assessment. In addition, we continue to strengthen our rights-based approach to ESG risk management by improving our systems and tools. This includes a serious incident register to track customer reports of fatalities, serious injuries, and environmental incidents, and a Sustainability Information System (SIS) to track our customers’ E&S performance, including its most salient human rights risks. In 2023, together with Austrian DFI OeEB, FMO led the EDFI working group on human rights. This resulted in further guidance on the implementation of the UNGP, and an updated EDFI harmonized human rights and contextual risk toolkit linked to the different stages in our investment process.

2024 Outlook

We continue to set ambitious targets for the future to meet our 2030 strategic ambitions. Considering the current and future expected market conditions, this will not be an easy feat. However, for every challenge, FMO sees an opportunity. Our role and purpose as a development finance institution is more relevant than ever before.

External developments and economic outlook

In January 2024, the International Monetary Fund (IMF) projected that global growth will be at 3.1 percent in 2024, consistent with the estimate for 2023. Growth in emerging markets and developing economies is also expected to hold steady at 4.1 percent in 2024. Global inflation is expected to decrease to 5.8 percent in 2024, down from 6.8 percent in 2023. However, inflation in emerging markets and developing economies is projected to remain relatively high at 8.1 percent, showing only a slight decline of 0.3 percent compared to 2023. Decreases in inflation are driven by monetary policies, softening labor markets and ongoing declines in relative energy prices. The IMF outlines several factors that could impact global growth in 2024. Among these are the extent to which low-income and emerging market economies are able to manage their high debt levels, the progression of geopolitical tensions, and productivity gains stemming from artificial intelligence. The latter may initially benefit advanced economies more than emerging markets and developing economies.35

Slower economic growth, high interest rates, and continued geopolitical tensions are forecasted for 2024 and will affect the context in which FMO operates. These factors will influence financing opportunities, while highlighting the importance of DFI action.

Several upcoming regulations require preparation in 2024, such as Basel IV, Corporate Sustainability Reporting Directive, Digital Operational Resilience Act and environmental risk-related regulations. While additional regulations will encourage sustainable practices, significant investments will be required to implement them. Artificial intelligence developments will continue to pose opportunities and threats, which could further increase the gap between developed and developing countries.

Priorities in 2024

In 2024, FMO will continue to focus on the following three priorities: growing impactful business, improving our capabilities, and ensuring FMO’s foundation is solid. We expect to leverage the momentum gained in 2023 to realize our targets.

We need to make long-term investments so we can continue to fulfill our purpose. We will continue to invest in our people, systems and processes to respond to the increasing complexity resulting from regulatory and supervisory requirements, stakeholder expectations and evolving impact management standards. In the short-term this will lead to a further increase of our cost-to-income ratio and, as such, result in a lower return on equity. Other factors that may affect our 2024 financial performance include the uncertain economic developments affecting the fair value of our private equity portfolio and the projected weakening of the US dollar in the year ahead. During the year, we will closely monitor our financial performance and make budgetary adjustments where needed.

Growing impactful business 

To achieve our 2030 ambitions, we have set the following portfolio targets for 2024:

Compared to 2023, we will increase our total new investments towards reduced inequalities (SDG 10) and climate action (SDG 13) by leveraging as much as possible FMO’s own capital and the funds made available by public entities ('public funds') and third-parties ('direct mobilized funds'). By investing €1.3 billion in RI-labelled total new investments and €1.5 billion in Green-labelled total new investments, we have projected that this should bring us to an RI-labelled total committed portfolio of €5.0 billion and a Green-labelled total committed portfolio of €5.4 billion by the end of 2024.

Overall, we aim to achieve a total committed portfolio of €14.4 billion by the end of 2024. In addition to our portfolio commitments, we will continue to focus on climate action initiatives and develop bankable opportunities by executing market creation projects.

Improving our capabilities 

To help us grow our impactful business, we will focus on improving FMO’s organizational capabilities, especially in the area of efficiency, people and required skillsets and impact management.

We will achieve efficiency gains by optimizing and digitizing selected investment and key support processes. In addition, we will drive continuous efficiency improvements through bottom-up initiatives by teams across FMO.

We will develop our people and the skills they need by increasing employee engagement, strengthening leadership capabilities, and implementing a cultural and behavioral change management program. We will also focus on leadership development programs, employee value proposition and fit-for-purpose technology.

Embedding impact management and monitoring will involve refining our impact governance and impact management framework, integrating external requirements, strengthening impact management and improving data collection.

Ensuring FMO's foundation is solid

Ensuring we continue to have a solid foundation remains a priority, as this is a prerequisite for our license to operate. In 2024, we will maintain and strengthen this foundation by demonstrating strong risk awareness to sustain development impact and strengthen a risk culture focused on risk-based policies, quality outcomes and efficiency. In addition, we will realize sustainable financial performance by balancing regular income and expenses. Furthermore, we will ensure regulatory compliance in all processes, by adapting to regulatory changes and further enhancing risk processes.

In control statement

FMO has internal risk management and control systems that enable us to take risks and control them and that are based on international best practices.

Adequate internal risk management and control systems support the attainment of objectives in the following categories:

• Realization of strategic and business objectives;

• Effectiveness and efficiency of processes;

• Reliability of financial reporting; and

• Compliance with laws and regulations.

The Management Board regularly considers the design and operation of FMO’s internal risk management and control systems (taking into account the approved risk appetite) and discusses all related significant aspects with senior management. The results of the Management Board’s monitoring of FMO’s internal risk management and control system – including significant changes and planned major improvements – and the defined risk appetite are discussed with FMO’s Audit & Risk Committee, which reports these to the Supervisory Board.

Based on our monitoring of the company’s internal risk management and control systems, and cognizant of their inherent limitations described below, we have concluded that FMO is in compliance with the requirements of best practices 1.4.2 and 1.4.3 of the Dutch Corporate Governance Code. The Management Board makes the following statement:

As Management Board of FMO, we are accountable for internal risk management and control systems within FMO.

Based upon our assessment of the internal risk management and control systems of FMO and barring unforeseen adverse external and internal conditions, we are of the opinion that:

1. The management report provides sufficient insights into any failings in the effectiveness of the internal risk management and control systems;

2. The aforementioned systems provide reasonable assurance that the financial reporting does not contain any material inaccuracies;

3. Based on the current state of affairs, it is justified that the financial reporting is prepared on a going concern basis; and

4. The report states those material risks and uncertainties that are relevant to the expectation of the company’s continuity for the period of twelve months after the preparation of the report.

Reference is also made to the 'Risk management' chapter for an explanation on FMO’s Risk management framework, which adheres to the three lines model.

We note that the proper design and implementation of internal risk management and control systems significantly reduces, but cannot fully eliminate, the possibility of poor judgment in decision-making, human error, control processes being deliberately circumvented by employees or others, management overriding controls, or the occurrence of unforeseeable circumstances.

Another limiting factor is the need to consider the relative costs and benefits of risk responses. Properly designed and implemented internal risk management and control systems will therefore provide reasonable, but not absolute, assurance that FMO will not be hindered in achieving its business objectives, or in the orderly and legitimate conduct of its business.

Responsibility Statement

We have committed to ensuring, to the best of our abilities, that this report was prepared and is presented in accordance with the Integrated Reporting framework and that the integrity of all information presented can be assured. In accordance with article 5:25c sub 2 part c of the Dutch Financial Supervision Act, we state that, to the best of our knowledge:

• The financial statements give a true and fair view of the assets, liabilities, financial position and profits of FMO and its consolidated companies;

• The annual report gives a true and fair view of the position on the balance sheet date and developments during the 2023 financial year of FMO and its consolidated companies; and

• The annual report describes the material risks that FMO faces.

The Hague, March 22, 2024

Fatoumata Bouaré, Chief Finance & Operations Officer
Franca Vossen, Chief Risk Officer
Huib-Jan de Ruijter, Co-Chief Investment Officer
Michael Jongeneel, Chief Executive Officer
Peter Maila, Co-Chief Investment Officer

Report of the Supervisory Board

This was FMO’s first full year dedicated to implementing its updated Strategy 2030. The organization was able to work steadily towards maximizing FMO’s impact, after some turbulent years marked by the pandemic and organizational challenges.

The necessity to combat climate change, together with the urgently needed action to counter the downward spiral that leads to poverty and migration, clearly underscores that FMO’s mission becomes more important by the day. Meeting some of FMO’s clients in Zambia in June 2023 allowed the Supervisory Board to hear about the challenges and needs of entrepreneurs in emerging markets first-hand. It also showed the insecurities and complexities FMO’s markets face and that, consequently, enabling sustainable impact is no easy task. Rather, it is an art to identify opportunities, create inclusive and sustainable growth and use scarce resources to mobilize other investors.

Looking at the impact FMO made in 2023, we are pleased to see a growth in Green and Reducing Inequality-labelled total new investments, compared to 2022. Although the highly ambitious targets were not reached, these are nonetheless good results. Looking at the critical times we live in, the Supervisory Board supports setting targets to achieve the highest impact possible, even if external circumstances may often moderate final outcomes.

Through the Impact Committee, the external debate on carbon credits is closely followed. We are pleased to see that FMO is conscious of regulation and quality control in its choices. On the topic of implementing the Corporate Sustainability Reporting Directive (CSRD), we anticipate that it may be a challenge for an organization like FMO that already has a well-functioning reporting method to implement these new European guidelines. The Impact Committee also keeps a close eye on investments that did not turn out as foreseen. These cases need attention, diligence and a learning-focused approach.   

FMO achieved a modest profit of €65 million. Although the political instability in some of FMO’s markets is still high, it was good to see that the non-performing loan exposure, at 9.8 percent, was lower than last year. As the Supervisory Board, we keep a keen eye on the trend in FMO’s regular income in relation to its organizational expenditures. In 2023, we see the two were well balanced. The impact ambitions towards 2030 do require the regular income to stay aligned with the expected higher operating expenses, largely driven by adapting to regulations and the hiring of more staff. The (delayed) effect of the high-interest rates with FMO’s customers will be an important factor as well. The renewed agreement with the Dutch State underpins FMO’s stable financial base.

In the years to come, market creation will add a new dimension to FMO’s work. The preparations for this new pioneering pillar have been finalized this year. We see great impact potential in aiding the growth of small businesses in emerging markets by making these businesses investment ready, leading to job creation, economic growth and stability. To be successful it will be essential for FMO to establish partnerships with parties that already hold local experience in ecosystem building and business development interventions.  

Classification of FMO as a ‘World Class Workplace’ by Effectory and the improved engagement levels and work satisfaction of FMO’s staff are a good indication that organizational development is on the right course. The launch of the updated values and behaviors are an important step as well. 

The last few years FMO has heavily invested in its KYC department and the compliance process. We fully support this. Being a gatekeeper to the financial system is a responsible position, required not only by law, but also expected by society at large. FMO has become more robust in this regard and needs to keep investing in its KYC process to remain on the right level.

After completing the Management Board last year - with five members now more in balance with the size of the organization - we are pleased to nominate a candidate for the vacant Supervisory Board position that will be proposed for adoption at the upcoming Annual General Meeting of Shareholders (AGM).

Looking back on 2023, we are proud to see that the FMO team has embraced the Strategy 2030 and is staying the course towards maximizing its impact. This forms a stable and promising base for the years to come.

Corporate governance

The Supervisory Board ensures that FMO adheres to all applicable corporate governance codes, further described in the chapter on corporate governance. Specific responsibilities include the tasks described in the Dutch Banking Code 2015 regarding sound and ethical operation.

Composition of the Supervisory Board

FMO aims to have a balanced composition of the Supervisory Board and Management Board in terms of gender, experience, age, professional background and nationality. At the end of 2023, the Supervisory Board comprised three male and two female members. There was one vacancy. The Management Board comprised two female and three male members. Further personal details on the members of the Supervisory Board are included at the end of this chapter.

Permanent education

This year, three Supervisory Board members took part in a lifelong learning journey to Zambia. The program included an update on the macroeconomic circumstances by a representative of the IMF, networking events with several business communities, visiting a variety of customers in the agriculture and financial sectors and their end-customers, a meeting with the WWF, and meetings with several ministers and government representatives. The other two members received regular updates.

Moreover, the Supervisory Board continued its more regular lifelong learning program focused on aspects required by for instance the Dutch Banking Code and other relevant topics. This included the Independent Complaint Mechanism and several of its cases, market creation, FMO’s internal control framework, the values in action project, and the complexities of the KYC process.

Evaluation

The Management Board functions in its five-member composition since December 2022. The Management Board took efforts to regularly discuss its performance and collaboration throughout the year 2023. Subsequently, the Management Board prepared a self-assessment and a team assessment of its functioning in 2023. This consisted amongst others of the achievement of the financial and non-financial targets, as well as areas of personal development. Non-financial targets included, for example, impact related targets and efforts that strengthen the foundation of FMO’s operations. The Supervisory Board evaluated the individual Management Board members by means of separate interviews that were conducted by two Supervisory Board members. During those meetings, the self-assessments and the 2023 and 2024 objectives and targets were discussed, as well as the collaboration within the relatively new Management Board setting. The conclusions from these meetings will be carried forward into the 2024 team and personal goals. The Supervisory Board discussed the outcomes of the evaluation in a concluding session without the Management Board present. It was concluded that the MB functioned effectively. However, there is always room for improvement, which is being worked on in a senior leadership development program called “leadership impact” and also regularly at MB off-sites. 

Regarding the evaluation of the Supervisory Board, the Banking Code requires an external evaluator to conduct such an evaluation once every three years. This was done over the year 2021. The Supervisory Board evaluated its functioning in 2023 by means of a self-assessment questionnaire and discussed the outcome, and a few additional reflections and observations, in a separate session. The functioning of the Supervisory Board, its three committees and the functioning of the individual members were part of the evaluation. It was found that the Supervisory Board and its committees functioned effectively. The members invest extra time when the agendas require this. The individual Supervisory Board members have a diverse set of skills, which is deemed beneficial for adequate supervision. The Supervisory Board has taken broad and extensive on the ground experience into account as much as possible when nominating a new member to fill the current vacancy.

Regarding the execution of the Strategy 2030, the Supervisory Board expressed a need for a continued focus on the longer-term strategic challenges of FMO. Therefore, the Supervisory Board will amongst others continue to monitor the financial results and the pace of hiring of staff during 2024, and monitor progress more in general. Regarding the operations of FMO, the Supervisory Board will pay attention to efficiency and the digitalization process of FMO. Regarding the Supervisory Board’s own organization of work, the Supervisory Board wants to create more time to reflect on topics that are not on the agenda of meetings. The energy spent on permanent education will be invested in keeping the Supervisory Board’s understanding up to date regarding the developments in the complex environment in which FMO operates, and topics as required by the Banking Code.

Appointments and reappointments

The Selection, Appointment and Remuneration Committee (SARC) continued the search to fill the vacancy in the Supervisory Board. A candidate was selected and has been shared with DNB for approval.

Meetings of the Supervisory Board

The Supervisory Board held five regular meetings during 2023 and six extraordinary meetings. The Supervisory Board closely monitored progress on the 2023 Business Plan, including the pace of hiring staff. The Supervisory Board gave its approval – among others – to the Agreement with the State, the 2024 Business Plan and updated versions of the Risk Appetite Framework and Recovery Plan. Other topics that were discussed included quarterly reports on the integrated results, compliance and risk, the SREP letter of DNB, the DNB measures, progress on KYC files, the Supervisory Board’s own retirement schedule and succession planning, the remuneration policy for members of the Management Board, the developments of a few complex projects and the search for a new external auditor.

Committee activities

The Audit and Risk Committee (ARC) supervises and advises the Supervisory Board on FMO’s financial position and risk. It monitors and offers expertise on issues such as our risk management policy, internal and external auditing systems and compliance with legislation and external and internal regulations. One of its tasks is to monitor the performance of internal and external auditors. The ARC held three regular meetings in 2023. In 2023, the ARC discussed recurring matters such as yearly and half yearly reporting, the business plan for the upcoming year, the risk appetite report and framework, internal and external audit plans and reporting, capital and liquidity adequacy, the status of the KYC files, the recovery plan. In addition, the ARC dealt with the selection of a new external auditor, for the fiscal years 2025 and onwards. The following key audit matters were discussed with the external auditor in March 2024: IFRS 9 impairment of loans to the private sector, valuation of equity investments at fair value and reliability and continuity of the information technology and systems. 

An important task of the SARC is to advise the Supervisory Board on the proposals on the appointment and re-appointment of Supervisory Board and Management Board members. Other tasks include monitoring the remuneration policy, preparing proposed adjustments and giving advice on the remuneration of individual members of the Management Board. The SARC officially met two times in 2023 and deliberated on an ad hoc basis, and discussed, among others, the search for a new member of the Supervisory Board, the search for a new chair and further retirement planning, evaluation and goal setting, remuneration and HR topics such as the company values and quality of interaction.

The Impact Committee assists the Supervisory Board in overseeing the quality and integrity of FMO’s statements regarding development impact. The Committee prepares the decision-making (and the advice) of the Supervisory Board around FMO’s strategy (including policies and targets) regarding impact and ESG. The Impact Committee held three meetings in 2023. Throughout the year, it discussed amongst others, the 2022 Annual Report and 2023 Interim Report, impact focused strategy implementation, the (integrity of) carbon credits and markets, the market creation operational strategy, 2023 progress versus business plan, the Impact Management Framework review, the 2024 Business Plan, the periodic status update of the Independent Complaints Mechanism and updates on complex projects.

Independence, conflicts of interest and governance

The Supervisory Board is of the opinion that all of its members are independent, as meant by Best Practice Provisions 2.1.7 up to and including 2.1.9 of the Corporate Governance Code. No direct, indirect or formal conflicts of interest were identified in 2023. FMO has specific regulations concerning private investments. Compliance by members of the Supervisory Board and Management Board and all other employees with FMO’s regulations on private investments is also addressed regularly.

Culture, including compliance

At FMO, the compliance function is safeguarded within the Management Board and the Supervisory Board. In 2023, the Supervisory Board continued to focus on the progress made on KYC reviews, KYC quality and improvement and efficiency of KYC procedures. The Supervisory Board received quarterly compliance updates during its meetings. In addition, the Chairman of the Supervisory Board met periodically with the Director Compliance to discuss relevant issues.

Furthermore, the Supervisory Board regularly interacted with the Works Council to discuss matters such as FMO’s culture and development program as well as its duties as outlined in the Banking Code relating to sound and ethical operation.

Proposals and recommendations to the Annual General Meeting of Shareholders (AGM) 

Having stated all of the above, the Supervisory Board endorses the report of the Management Board. We propose that the AGM adopt the 2023 Financial Statements audited by Ernst & Young Accountants LLP. In accordance with Article 6 (2) of the State-FMO Agreement of November 16, 1998, and the current dividend policy, we propose that the AGM approve the allocation of €64.9 million net profit (2022: €1 million net profit) as follows: €62.8 million profit to Contractual Reserves and a distribution of €2.1 million as a cash dividend equal to €5.38 per share A and share B.

Another proposal for adoption by the AGM is the appointment of a new external auditor.

In addition, the Supervisory Board is pleased to nominate a candidate for the vacant Supervisory Board position. Furthermore, the reappointments of several Supervisory Board members will be proposed.

We trust that the AGM will also discharge the Management Board for its management of FMO and the Supervisory Board for its supervision during the reporting year. 

Members of the Supervisory Board

Details of the members of the Supervisory Board per 31 December 2023, including other positions, are provided in the following table.

Corporate governance

Good corporate governance at FMO is crucial for two reasons. The first relates to our mission to enable entrepreneurs to increase inclusive and sustainable prosperity. We believe that to carry out this mission, a high standard of corporate governance is paramount. The second is that, as a public-private development bank, our own governance, structure and reporting lines must be both sound and transparent.

Governance structure

FMO’s corporate governance structure is based on the premise that FMO has established a long-term partnership with various stakeholders who, directly or indirectly, influence or are influenced by the achievement of our objectives. Stakeholders include customers, the Dutch Government, shareholders and other providers of capital, employees, NGOs and local communities in the countries where we work, as well as partners.

FMO is expected to take the interests of all stakeholders into account at all times. In governance terms, this expectation is expressed through the responsibilities and accountability of the Management Board and Supervisory Board with regard to our shareholders and other stakeholders.

FMO’s Supervisory Board has non-executive responsibilities, including to supervise and advise the Management Board. New members of the Supervisory Board are appointed by the General Meeting of Shareholders on the nomination of the Supervisory Board. The Supervisory Board currently has three committees: the Audit and Risk Committee, the Selection, Appointment and Remuneration Committee, and the Impact Committee, which advise and prepare decision-making. The Impact Committee deals with subjects such as ESG (including human rights), impact strategy, impact measurement, (NGO) stakeholders and communication, reporting and international developments regarding impact.

The daily management of our bank lies with the Management Board. The members of the Management Board are appointed by the Supervisory Board. They are independent and the Supervisory Board deals with any conflict of interests. Appointments of members of the Supervisory Board and Management Board are subject to approval by the Dutch Central Bank, which assesses the reliability and suitability of candidates. FMO organizes extra training where necessary and offers a lifelong learning program to its Management Board and Supervisory Board members.

In 2022, the Management Board was expanded from three to five members to spread the increasing workload. FMO faces a number of challenges, including a growing pace of change in our markets, the growth of our organization and the need to engage more actively with a larger number of stakeholders. 2023 marked the first full year in this new setting.

Members of the Management Board

Details of the members of the Management Board per 31 December 2023, including their outside positions, are included in the following table.

Organizational chart

Our organizational structure per 31 December 2023 is as follows.

Diversity and inclusion

FMO promotes diversity at all levels, including for the Management Board and Supervisory Board. FMO’s diversity policy is embedded in several documents and ways of working. The aim of our diversity policy is to have well-balanced boards, which are up to their task and can come to good solutions, while considering the members’ different perspectives, backgrounds and experiences.

The Supervisory Board aims for a diverse composition with respect to gender, education, experience and age as well as relevant knowledge, expertise and experience in the business areas in which FMO is active. Similar diversity aspects apply to the composition of the Management Board with respect to experience, expertise, gender, cultural background and age. This is deemed important to ensure effective supervision and effective management, respectively, and, by extension, for long-term value creation. In line with FMO’s diversity policy, included in the Supervisory Board Profile and in the Management Board Standing Rules, and in line with the Act on Gender Balance in Management and Supervisory Boards (In Dutch: ‘Wet evenwichtiger verhouding tussen mannen en vrouwen in bestuur en raad van commissarissen’), FMO strives to meet the gender target.

For the Supervisory Board, the target is for the board to consist of at least one third men and at least one third women. The Supervisory Board consists of six members. In 2023, there was one vacancy. During the entire year, the Supervisory Board consisted of two women (40 percent) and three men (60 percent). The candidate considered for the vacant position is a woman. One of the Supervisory Board members is non-Dutch and holds the Ghanaian and British nationality.

FMO’s Management Board consists of five members. The aim is for the board to consist of at least one third men and one third women. At year end, the Management Board consisted of two women (40 percent) and three men (60 percent). The Management Board consists of one Ivorian member, one member with the South-African and British nationality and three members with the Dutch nationality.

In both boards, the ages of the members are well distributed, and knowledge and experience comply with the applicable matrices.

When vacancies arise, the Selection, Appointment and Remuneration Committee and the Supervisory Board give due consideration to any applicable gender requirements in its search for suitable new members with respect to meeting the fit and proper requirements as stipulated in the Dutch Financial Markets Supervision Act. As a collective, the members should have the required expertise with regard to development banking and the aspects that come with it, aimed at FMO’s working area. This is further described in the applicable Profile and Standing Rules and, when vacancies arise, in the respective job profiles.

Aligned remuneration policies

The remuneration policies attach equal importance to investment and risk functions, by ensuring similar salary scale levels for both functions and avoiding bonus structures that incentivize excessive risk taking. As a purpose-driven organization, FMO does not offer identified staff (senior management and staff whose professional activities have a material impact on FMO’s risk profile) any form of variable remuneration such as bonuses. Our results are mainly based on team effort, innovation, knowledge sharing and collaboration between colleagues in different disciplines, which does not align well with offering substantial bonuses for individual performance.

FMO’s remuneration policy for the Management Board aims to attract, motivate and retain capable people with sufficient knowledge and experience in international development finance. The remuneration policy is aligned with the mission of FMO, the corporate values, the strategy, the risk appetite, as well as the expectations of various stakeholders. The remuneration policy does not incentivize directors to act in their self-interest or to take risks that do not fit with FMO’s risk appetite. Furthermore, the policy does not reward failing Board members for such behavior after they have been discharged. The remuneration policy is based on a market median, composed of two equal proportions of a private benchmark (Dutch financial sector) and a public benchmark, considering financial sector remuneration regulation and principles applied by the Dutch Government as majority shareholder of FMO.

Employment contracts of members of the Management Board are awarded for a definite period (except for internal appointments). In the event the employment contract is terminated before the expiry date, the maximum severance payment will amount to one year’s salary, unless the board member resigns voluntarily, or the termination is the result of his or her actions.

The remuneration policy for the Management Board is reviewed every three to four years and amendments are subject to approval at the AGM. During the April 2023 AGM, a few amendments to the remuneration policy were proposed or approved. These amendments were about indemnity for former, current and future Management Board members, to follow market practice, as other banks have similar arrangements. Furthermore, the appointment period of members of the Management Board has been adjusted to better align with the Memorandum State Participations, which was published in 2022. Management Board members can serve two terms of four years and thereafter - by exception only - two extra reappointments of two years are possible.

More details on the remuneration of the Supervisory Board, the Management Board and other (identified) staff members can be found on FMO’s website. Aspects of Management Board members' remuneration are also disclosed in the paragraph 'Related party information' in the 'Consolidated Financial Statements'.

The ratio between the remuneration of our CEO (the highest-paid individual) and the median of all other colleagues (including the other Management Board members) per 31 December 2023 was 0.28 (2022: 0.29). This means that the CEO receives a total fixed remuneration of 3.5 times the median of the fixed income paid to the rest of total staff population, which in comparison to the Dutch financial sector is relatively low.

Independent complaints mechanism

FMO invests in emerging markets and developing economies and aims to create value for the organization, its stakeholders, society, and the environment. When investments lead to environmental and human rights harm, FMO is accountable to affected communities through its independent accountability mechanism. FMO has implemented an Independent Complaints Mechanism (ICM) together with the Deutsche Investitions- und Entwicklungsgesellschaft (DEG) and the French DFI Proparco. This allows people who feel affected by an FMO-financed operation to file a complaint with an independent expert panel. The independent expert panel is part of the ICM and has a dual mandate: a fact-finding and monitoring role (compliance review) and a problem-solving role (dispute resolution). Escalating to the problem-solving role is only possible if all parties agree and there is a reasonable expectation that a mutually-agreed resolution of the complaint will be possible.

The Independent Expert Panel prepares reports in several phases of a complaint (e.g. notice of admissibility, preliminary review, compliance review, dispute resolution process, monitoring report) as specified in ICM’s policy. Before publicly publishing on FMO’s website on Complaints disclosure, parties (complainant, client, FMO) are asked for comments to ensure adequate reflection of facts and sensitivities. These reports can be used to monitor the complaints’ progress and outcomes of the process. 

The ICM applies an approach of continuous improvement. In the ICM annual report the overall effectiveness of the mechanism is (publicly) reported. In addition, peer complaint mechanism best practices are followed to continuously improve the mechanism. Procedures are developed and/or adjusted on this basis. Furthermore, the ICM and its policy must be evaluated at least every four years. Currently, the update of the policy is in progress following an external evaluation. The policy update process includes a round of public consultation to ensure that stakeholders can provide their comments, which will be considered in the finalization of the new ICM policy. In addition, the Ministry of Foreign Affairs periodically has an independent 'FMO-A evaluation' carried out, of which the ICM is a part. This was last done in 2020.

For more information, please see the Independent complaints mechanism on FMO’s website. 

Corporate governance codes

FMO abides by two governance codes: the Dutch Corporate Governance Code and the Dutch Banking Code. We comply with the Banking Code or will otherwise explain where and how we diverge from this code, including concrete examples. This document can be found on our website. Monitoring of the Code and other operational risks are further described in the ‘Non-financial risk’ section in the ‘Risk management’ chapter.

The Dutch Corporate Governance Code (‘the Code’) only applies to organizations whose shares are listed on a regulated market. As a non-listed bank, FMO is not required to adhere to the Code, but we have chosen to do so, nonetheless. In December 2022, the Code was updated, which applies as of the fiscal year 2023. Changes related to such topics as sustainable long-term value creation, new requirements for the composition of the annual management report and diversity and inclusion. The Supervisory Board and the Management Board fully endorse the basic principle on which the Code is based, namely that the company has a long-term partnership with various stakeholders. FMO has a policy regarding bilateral contacts with our shareholders, which is provisioned by the Code and published on our website.

The relevant principles and best practice provisions of the new Corporate Governance Code have been implemented, with the exception of the following principles and best practice provisions, which can be explained as follows:

BPP 1.1.5: FMO engages with its stakeholders regarding sustainability aspects of the strategy in various forms, from day-to-day, business-as-usual engagement to more strategic and planned engagements, such as regular meetings, surveys, forums, events and stakeholder dialogues.

For example, in 2023 NGOs published assessments of FMO’s performance on transparency and FMO’s climate policy, on basis of which we engaged in dialogue meetings.

In 2024, we expect to publish an outline policy for effective dialogue with the relevant stakeholders.

BPP 1.3.6: This provision only applies if the company does not have an internal auditor. FMO does have an internal auditor.

BPP 2.1.5: The diversity and inclusion policies of the Supervisory Board and Management Board are included in the Supervisory Board profile and the Standing Rules of the Management Board. In practice they are well adhered to, given that the Supervisory Board consists of 40 percent female and 60 percent male members (after appointment of the new Supervisory Board member 50 percent / 50 percent) and in the five-member Management Board, the 40 percent female / 60 percent male composition. For FMO’s staff, FMO has several D&I practices, a statement, communities and reports on several elements, however, the aim is to include these in a D&I policy.

BPP 2.1.6: Reporting takes place via (amongst others) the annual report, SER portal and internal gender diversity reporting. FMO does not report yet according to a D&I policy document.

BPP 2.2.2: This provision refers to the reappointment of Supervisory Board members. The third term of four years, as meant in the previous version of the Corporate Governance Code, is split into two terms of two years in the current version of the Corporate Governance Code. Section 2.7 of the Supervisory Board Standing Rules, which deals with reappointments and the duration thereof, will be amended accordingly at the next revision. None of the Supervisory Board members exceeded the eight-year term in 2023.

BPP 2.2.4: This provision requires a written (separate) succession plan, which focuses on knowledge, experience and diversity. At FMO, knowledge, experience and diversity are included in the profiles of the Supervisory Board and the Management Board. Succession and knowledge are regularly discussed in meetings of among others the SARC. The Supervisory Board retirement schedule is placed on the website. The Supervisory Board uses this as a basis for succession planning in the coming years.

BPP 2.5.3: In practice, FMO complies with this principle. However, FMO has no integral D&I policy yet.

BPP 2.3.10: This provision states that the Supervisory Board is supported by the Corporate Secretary of FMO. Section 6.1 of the Standing Rules of the Supervisory Board states that the Supervisory Board secretary might also be one of its members. In practice, it is the Corporate Secretary of FMO. This will most likely be amended at the occasion of the next amendment.

BPP 2.8.1 - 2.8.3: Stipulations on takeover bids are not implemented, given our stable majority shareholder, the State of The Netherlands.

BPP 4.1.4: The explanation of the agenda of the AGM is not published on FMO’s website, since this document is sent to all shareholders of FMO.

BPP 4.1.10: The draft of the AGM minutes was published in time. However, the final version was accidentally published later then the Articles of Association require.

BPP 4.2.3: This provision relates to analysts’ meetings and presentations to institutional investors. This provision is of no practical significance to FMO and therefore does not apply.

BPP 4.2.6: This best practice provision requires the Management Board to provide a survey in the annual report of all anti-takeover measures to prevent control from being relinquished. FMO has not incorporated any anti-takeover measures in its articles of association, because it has a stable majority shareholder, namely the State of The Netherlands. Therefore, an overview as meant in this provision is not incorporated in this annual report.

BPP 4.3.3: This provision does not apply, as this provision refers to a legal entity that does not apply a so-called ‘structuurregime’. FMO is a so-called ‘structuur’ legal entity as defined in paragraph 2.4.6 of the Dutch Civil Code.

BPP 4.3.4: This provision does not apply, as it refers to financing preferred shares, which FMO does not use in its share capital.

BPP 4.3.5 and 4.3.6: These provisions are most likely not applicable, as FMO most likely does not have shareholders which can be fully characterized as institutional investors with regard to FMO. Moreover, the provision is the responsibility of the institutional investor.

BPP 4.3.7 and 4.3.8: These provisions are not applicable, as FMO’s shares are not listed.

Principle 4.4. Shareholders recognizing the importance of a strategy focused on sustainable long-term value creation for the company and its affiliated enterprise, is the responsibility of the shareholder.

BPP 4.5.1 - 4.5.8: These provisions concern the issuing of depositary receipts for shares. FMO’s articles of association lay down that the company is not permitted to cooperate in issuing depositary receipts of shares.

BPP 5.1.1 - 5.1.5: These provisions do not apply, as FMO does not have a one-tier board.

A few minor textual changes will be included in the relevant Standing Rules and/or policies in the course of 2024.

FMO Investment Management BV

FMO Investment Management B.V. (FMO IM) is a 100 percent subsidiary of FMO. Its purpose is to build and grow investment management services for professional investors. This is part of FMO’s strategic ambition to mobilize commercial investors to invest in emerging markets, thereby increasing its overall impact. FMO IM aims to scale up impact investing by providing investors access to FMO’s deal flow in sustainable emerging markets.  

FMO IM has a license as an investment firm and is authorized to provide investment advice. FMO IM has its own Management Board. As sole shareholder of FMO IM, FMO determines the charter and scope within which the company operates, and FMO has approval rights for specific matters.