The Dutch newspaper Trouw published an article about several of FMO’s past and current investments. In this response, we would like to present our view on this article.
First and foremost, we as FMO sincerely regret and are shocked by these incidents. We take very seriously our responsibility to manage the situation in the most responsible way and make improvements where possible. However, in some cases a short-term solution is not feasible due to local circumstances.
As a development bank, we have the explicit responsibility to make investments that commercial parties perceive as too risky. That can be because the country in question lacks financial infrastructure or is perceived as too “fragile” by private investors, because the investment concerns bold but unproven innovations with high potential, or because it requires a maturity period longer than what most investors dare to take on.
In short, we invest in entrepreneurs working in the world’s most challenging markets, who do not have access to commercial finance.
All our investments must be additional to what the market can provide and need to contribute to the UN Sustainable Development Goals. More specifically, we focus on Reducing Inequalities (SDG10), Climate Action (SDG13) and Decent Work and Economic Growth (SDG8). For every project or investment, we contractually agree with our client about the required improvements that need to be executed in the fields of human rights, environmental standards, and corporate governance. Within FMO, we have more than 60 employees dedicated to these environmental, social and governance (ESG) aspects of our transactions. We also consult external parties for additional research and independent advice. The whole decision-making process can take up from two months to four years, depending on the complexity of the project, the outcome of the preliminary investigation, the Due Diligence, and the required actions from external parties.
To ensure the company we finance is realizing the required improvements, we monitor the company for the duration of the contract. We provide extra financial support when needed.
In most cases these improvements are successfully implemented. This was not always the case for the projects mentioned in the article. The article focuses on four projects from our current portfolio and three projects from the past, one of which was never developed. We are aware of the problems concerning the four current projects and these are actively managed. We recognize some of the examples mentioned in the article, but not all. Any additional information that is provided to us is taken very seriously and further investigated. We acknowledge that in some cases, despite all our diligence and care, projects have gone wrong, which means we should have done things differently. We always learn from these experiences and evaluate how we can avoid similar mistakes in the future, sharpening our processes where needed
The seven projects mentioned in Trouw are amongst the most difficult in our portfolio of approximately 1500 projects from the past ten years. They are characterized by their complexity and the highly nuanced circumstances surrounding them. With the benefit of hindsight, there are of course things we could or should have done differently. The reality of our daily work is that we can never fully prevent incidents from occurring. What we can do is learn from what has occurred and evolve as an organization. We learn from our Independent Complaints Mechanism, from regular evaluations that are conducted for our full organization, from our partners, and from the international regulations to which we adhere. We learn the most from the dilemmas we face on a daily basis while working in these challenging business contexts; carefully weighing the interests of the broad group of stakeholders surrounding our projects.
Over the past 20 years, ESG has increasingly been integrated into our investment process and business operations. An overview of the most recent improvements:
- 2017: we published our new Sustainability Policy, which was informed by a broad external consultation process.
- 2017-2018: we developed position papers and policies on human rights, gender, land governance, coal, animal welfare, hydro power and responsible tax.
- 2018: we developed a human rights toolkit with specific guidelines for conducting Due Diligence and for human rights defenders.
- 2019: we further expanded and embedded our expertise on ESG policy and monitoring (team of over 60 professionals).
Our stakeholders have been calling on us to become more transparent about our proposed investments and about our investment dilemmas. We made the following improvements based on their input:
- 2016: we established an Independent Complaints Mechanism, through which concerns about our investments can be submitted. We investigate all admissible complaints.
- 2017: we introduced ex-ante disclosure (30 days) for high-risk investments.
- 2018: we introduced ex-ante disclosure (30 days) for all investments;
- Since 2018, we have engaged in recurring dialogues with civil society organisations about the dilemmas we are facing with some of our more complex investments;
- 2019: we published our first human rights report in accordance with the UN Guiding Principles on Business and Human Rights Reporting Framework.
Finally, for our 2019 FMO annual report we will reflect and provide a higher degree of transparency on the risks of our investments.