Potential risks and opportunities

Considering current internal and external developments, we present an overview of several strategic challenges and the risks and opportunities these present to FMO's ability to create value in the short to medium term. The risks described present the following business risks that could impact FMO's strategic objectives and reputation: business model, ESG, regulatory, and strategy execution risks. Other risks in FMO's risk taxonomy are described in the 'Risk management' chapter in the Annual Accounts. Our strategic responses reflect tactical strategies - in line with our current strategy - that we will explore or implement in the short to medium term.

Strategic challenge	Risks	Opportunities	Strategic response
Building back business at a highly uncertain time due to the continuation of the pandemic and increased liquidity in some of FMO’s markets	• The impact of the pandemic on economic recovery continues to be uncertain, which may affect demand and supply of financing in our markets. • Continued travel restrictions and limited access to local markets, will affect our ability to achieve our ambitions. • Continued lower production may affect FMO’s profitability.	• Explore different ways of sourcing transactions, e.g. working with partners with local presence and know-how, improving our virtual work environment and conducting virtual due diligence. • Enhance collaboration and knowledge sharing within FMO and with other DFIs, consultants, NGOs, development agencies, etc.	• Review sector strategies and secure blended finance for new sub-sectors with high impact development potential that are perceived as high-risk. • Explore opportunities for market and project creation. • Develop new ways of working to source and follow up on opportunities.
Continuing to contribute towards tackling the global issues of (accelerating) climate change	• Global warming is on course to surpass the 1.5˚-degree Celsius mark, which will increase the risks to vulnerable countries and communities. • This may lead to more extreme weather in our markets, which increases the risks in our portfolio.	• Finance investments that directly contribute to climate mitigation. • Support customers on their path to net zero emissions and manage climate risk to their business. • Invest in assets that remove emissions, such as forestry.	• Explore FMO’s increased contribution to climate adaptation and resilience. • Explore ways to maximize financing of climate-aligned assets. • Incorporate climate risk into governance and risk management processes and controls.
Continuing to address the global issue of (rising) inequality in countries and regions where the need, but also the risk, is greatest	• Inability to tackle areas with sustained or rising inequality may lead to criticism from stakeholders and damage FMO’s credibility.	• Enhance focus and efforts on low-income countries (e.g. fragile states) and topics such as gender and youth finance. • Provide financing aimed to strengthen the resilience of countries to climate change by focusing on food security, resource efficiency, smart agriculture practices and climate adaptation.	• Focus our efforts on countries and topics where the need is greatest and FMO is able to make a meaningful impact.
Increasing stakeholder expectations of the role of FMO	• Stakeholder expectations towards FMO are increasing and are sometimes at odds with one another (e.g. investing in fragile states vs. mobilizing private capital). Attempting to appease all stakeholders equally could result in less focus and ability to create impact. • Negative attention could lead to reputational damage and affect FMO’s ability to source (the right) deals.	• Continue the dialogue with the Dutch government, regulators, NGOs, and internal stakeholders on the role of FMO to strengthen our impact reporting and related frameworks. • Discuss the opportunities and challenges in carrying out our ambitions to grow understanding of the complexity of our decisions and position.	• Engage with key stakeholders during the development of our 2030 strategy. • Increase transparency on dilemmas and challenges through various communication channels.
Increasingly complex regulatory landscape	• Data reporting requirements from regulations increase demands on capacity and infrastructure. • Continuously changing regulations could make ad-hoc approach to compliance inadequate; risk of losing (cost) control. • Mismatch between FMO’s impact framework and EU sustainable finance requirements, leading to reputational risk. • Increasing capital requirements constrain portfolio growth.	• Improved reputation for FMO as a trusted partner in business development in high-risk markets. • Use strong compliance framework as a basis for advisory work for customers and knowledge sharing with others in the industry. • Use high-level reporting data to generate insights to improve strategic decision making and business development.	• Develop long-term digitalization / compliance architecture vision and ability to adapt to changing regulatory landscape.