Letter of the Management Board

There are eight years left for the world to achieve the Sustainable Development Goals (SDGs) and we still have a long way to go. The widely different way in which countries have recovered from the pandemic has caused inequality to increase. And the global average temperature is still on course to breach the 1.5-2 degree limit of the Paris Agreement. More than ever, there is an urgent need for the private sector to work with governments and civil society to find, nurture and finance projects that will bring positive change.

Impact, innovation and profit

Despite travel restrictions, we continued to support our customers during the pandemic. And while we did not achieve our target on FMO new investments, we exceeded our target on the mobilization of third-party funds and nearly achieved our target for public fund investments. Our impact numbers show a similar picture. We invested €714 million in reducing inequalities, exceeding our target of €596 million. Yet, the €544 million we invested in green projects fell short of our €592 million target. In total, we estimate that our outstanding portfolio supported 644,119 direct and indirect jobs. 

Building on the enormous drive of our employees and the strength of our reputation, we created impactful partnerships such as Mobilising Finance for Forests with the UK government. We also committed to Climate Investor Two, a blended finance facility focusing on water that follows its predecessor, Climate Investor One, which focused on renewable energy. In addition, we supported the successful establishment of Invest International and the transition of NL Business to this entity; we published a position statement on fossil fuels; and signed on to the Clean Energy Transition at COP26. We also continued to give attention to several complex projects. Learning from one another, and from mistakes made in the past, is part of that process.

In 2021, FMO made a profit of €491 million. This is a significant improvement compared to the end of 2020 when we reported a loss of €205 million. There are three main drivers to explain this. First, economies have largely recovered after the initial COVID-19 shock, which has led to a significant upward revaluation of our private equity portfolio. Second, the appreciation of the US dollar has had a positive effect on the value of our assets. As our investment portfolio is largely denominated in US dollar, fluctuations in the exchange rate strongly affect our financial results. Third, despite the initial negative outlook, we were glad to see that most of our customers were able to meet their financial obligations, which has led to a net release in our impairment levels.

Since the implementation of IFRS 9 our financial results are more volatile than before. This is due to the fluctuation of the valuation of our equity investments that is reflected in the profit and loss. The proceeds of our loan portfolio make up our stable income. Our overall portfolio still grew compared to 2020, but the increase was less than we set out to achieve. Although these effects are not yet visible in the 2021 financial results, we recognize the need to reverse this trend in coming years.

Know Your Customer ready for the future

In 2021, we completed our financial economic crime (FEC) enhancement project. This included an extensive Know Your Customer (KYC) file remediation, tailored to the specific requirements of developing and emerging economies. This asked a lot from our staff, and it is due to their ongoing perseverance, dedication, and resilience that we have been able to stand by our customers and conclude this project. The validation identified several recommendations that FMO will follow up on in 2022.

COVID-19, the travel restrictions and our focus on the FEC enhancement project in 2021 meant we temporarily had to slow down business activities with new customers. Now that the implementation of our bespoke KYC process is realized and travel is starting to be possible again, business activities with new customers are picking up. To realize our impact agenda, it is critically important that we select the right customers - they are effectively our partners on the ground that create the positive impact. Our new KYC process leads to longer turnaround times and a higher cost of doing business, but at the same time our customers are effectively awarded with ‘a seal of approval’ which will give other financiers and institutional investors the confidence to invest alongside FMO. For instance, through funds like the NN-FMO Emerging Markets Loans Fund which was recognized as ‘fund of the year - private debt’ by the Environmental Finance IMPACT Awards 2021.

New leadership, ambitious goals

In 2021, FMO also welcomed our new CEO. In September, Michael Jongeneel took over from interim CEO Linda Broekhuizen, who left the organization after 21 years of service. Years for which we are very grateful. With the support of our Supervisory Board and in consultation with our employees, we have set ambitious targets for 2022. We are aiming for approximately €2 billion in FMO investments, €300 million in public fund investments and €500 million in mobilized fund investments. We will grow the organization to realize this volume. Also, the Management Board will expand from a three to a five-person board. 

Looking at our three focus sectors – agribusiness, food & water (AFW), energy and financial institutions (FI) – we see plenty of opportunities. As (commercial) finance for renewable energy generation has increased significantly, FMO will shift its focus more towards transmission, distribution, storage and decentralized models like mini-grids. In FI, the key constraint in serving traditional banks is risk appetite rather than liquidity, so we expanded our strategy to include risk sharing and support for new financial intermediaries such as FinTechs and specialized financiers. In AFW, we see commercial banks withdrawing, meaning our additionality has increased. We will explore opportunities in soil carbon sequestration, climate change adaptation and protecting forests. These changes will be reflected in the strategy 2030, which will be finalized in 2022.

While pursuing our impact goals, international developments influence our markets. There are numerous concerns for national and regional stability and security across the world with potential consequences on displacement, involuntary migration, energy and food supply and price levels. We are deeply concerned for the people of Ukraine, following and assessing the situation in the region on a daily basis. Our direct exposure to the country and Belarus is around €230 million; indirect effects are still developing. We work with 14 customers in Ukraine, mostly in the agribusiness and renewable energy sectors. We are trying to stay in contact with our Ukraine customers as much as possible to support them. 

Tackling challenges in concert with our stakeholders

As we pursue these ambitious goals, we will need to tackle several challenges. In the coming years, several new regulations are coming into force that will affect FMO. These include the EU Sustainable Finance regulation, ECB requirements related to the disclosure of climate-related risks and the LIBOR transition. FMO will focus on the implementation of these requirements, ensuring they are done in an efficient and effective manner. We will build on the experiences gained in the last two years in completing our FEC enhancement program.

In addition, we will continue to increase our engagement with civil society to discuss the dilemmas we face. Our dialogue continues to challenge us and to support improving our approach at a time when stakeholder expectations are rising and the outside attention we have received with respect to the way we conduct business has increased. 

In 2021, we took further steps to serve our customers and markets better in the future. Building on the skills and knowledge of our highly diverse staff, we see a solid basis for growth. As a regulated and accredited entity, FMO will be a key driver of change, mobilizing much-needed funds to achieve the SDGs. To be truly transformative in our impact, we will be bold, take risks, be innovative and try out different models - while we continue to transform ourselves as well. We look forward to partnering with all our stakeholders on this worthwhile endeavor.

Fatoumata Bouaré, Chief Risk & Finance Officer
Michael Jongeneel, Chief Executive Officer
Huib-Jan de Ruijter, Chief Investment Officer