FMO screens all transactions on ESG risk. FMO categorizes its investments in different levels of Environmental and Social (E&S) risk, similar to IFC’s approach to E&S risk categorization, which is also used by all European Development Finance Institutions (DFIs). For direct investments, risk categorization is based on the client’s activity, IFC Performance Standards triggered transactions and prevailing country specific ESG challenges.
With regard to financial institutions the risk categorization is made on the basis of the banks existing or proposed portfolio, IFC Performance Standards triggered transactions and prevailing country-specific sensitive issues.With regards to ESG in particular, FMO requires all direct investments of medium and high E&S risk to fully adhere to the ESG standards. Low risk (category C) investments are required to adhere to applicable law. For investments in financial institutions (FI), FMO requires FI-A and FI-B clients to apply the IFC Performance Standards framework to IFC PS-triggered transactions. Transactions with countryspecific sensitive issues will be addressed through the IFC Performance Standards. The rest of the portfolio needs to adhere to applicable law and, when relevant, the client protection principles. FMO requires Private Equity Funds to implement an ESG risk management system which is compliant with the IFC Performance Standards.
During due diligence FMO executes a thorough ESG assessment on its potential clients. This enables FMO to identify the main ESG risks and strengths that a client is exposed to and to assess the quality of its risk management and mitigation measures. The findings during due diligence are important input for monitoring and engagement throughout the investment, or could lead to modification of the transaction (including cancellation).
Dedicated ESG specialists within FMO engage actively with all category A, B+, and where warranted, category B clients. The level and exact focus of engagement depend on the type and severity of impact and/or the extent to which they pose a risk to the client and FMO. ESG risk management is fully integrated in the approval process: this judgement call lies with FMO’s commercial teams while FMO’s credit team independently subjects it to critical scrutiny for verification. Both deal and credit teams have dedicated ESG specialists that are involved in the assessment. FMO applies heightened scrutiny to any investment causing complex resettlement or affecting Indigenous Peoples, critical habitat or critical cultural heritage.
For more information, refer to: https://www.fmo.nl/policies-and-position-statements