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Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO)

PRI reporting framework 2020

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Pre-investment (selection)

PE 05. Incorporating ESG issues when selecting investments

05.1. During due-diligence indicate if your organisation typically incorporates ESG issues when selecting private equity investments.

05.2. Describe your organisation`s approach to incorporating ESG issues in private equity investment selection.

At the selection stage for private equity investment FMO adheres to the FMO exclusion list, please refer to: http://www.fmo.nl/exclusion-list.

In addition, all our direct investment clients are required to comply with national E&S law as a minimum standard, and with the Environmental and Social Performance Standards, as developed by the International Finance Corporation (IFC), member of the World Bank Group, whichever stricter. All new and existing clients are subject to a Risk Categorization (there are four risk categories A, B+, B and C) of their (potential) Environmental and Social impacts. FMO selects clients based on their willingness to comply (over time) with local and international ESG standards. Together with the client, FMO strives to identify each client’s individual ESG business case. If necessary, FMO contractually agrees upon “SMART” (specific, measurable, achievable, realistic and time-bound) action plans with high risk clients and shall have dedicated personnel to support these clients. Successful results in implementing these action plans demonstrate FMO’s ESG development impact and added value.

Initial screening:
- ESG Rapid Risk Screening templates or FMO ESG Toolkit – E&S officer or analyst provides advice and support to FMO Investment Officers - FMO's credit department/Investment Committee has dedicated ESG capacity (4 eye principle) providing objective feedback on the ESG analysis attached to the investment proposals being made by FMO's front office. This is a formal part of FMO's investment policy.

Due Diligence:
- On high and medium/high risk investment the E&S officer conducts an E&S due diligence (in some cases with support from an external ESG consultant) on the fund manager or the company. E&S officers provides advice and support to FMO Investment Managers - FMO's credit department/Investment Committee has dedicated ESG capacity providing objective feedback on the ESG analysis in the investment proposals being made by FMO's front office. This is a formal part of FMO's investment policy.

Investment decision

- Internal credit department can turn down investment proposal for reasons of ESG issues in the project - IC approval often contains strict ESG conditions.

 

05.3. Additional information. [Optional]


PE 06. Types of ESG information considered in investment selection

06.1. Indicate what type of ESG information your organisation typically considers during your private equity investment selection process.

06.2. Describe how this information is reported to, considered and documented by the Investment Committee or similar.

After FMO’s due diligence, an ESG Risk Analysis is being prepared by the ESG Officer. This analysis consists of the due diligence findings, gaps with international and World Bank Standards, ESG risks and value add opportunities, and proposed mitigation measures. The mitigation measures (or ESG action plan) are always included in the legal documentation between FMO and the investment company/fund. Both the ESG Risk Analysis and the mitigation measures are being included in the final investment proposal of the fund/company, which is being submitted to FMO’s Investment Committee. The Investment Committee assesses the proposal and provides a final approval which can include strict conditions, also on ESG when deemed relevant. The final investment proposal and IC decision, are being documented within FMO’s internal filing systems.


PE 07. Encouraging improvements in investees

07.1. During deal structuring,what is the process for integrating ESG-related considerations into the deal documentation and/or the post-investment action plan?.

If yes

07.2. Describe the nature of these improvements and provide examples (if any) from the reporting year

As a result of a merger,  FMO’s overall exposure to large high-risk projects increased in the client’s portfolio. The client requested us to support it in advancing its E&S due diligence and risk management practices. We developed a technical assistance program to further develop the bank’s E&S risk management capacity. As part of the program, the bank has initially reviewed current systems and practices and prepared a work plan for the next year to integrate E&S risk management within the investee’s daily operations. To date, our investee has revised and improved its E&S policy. Next steps include capacity building of its ESG personnel and staff through on-the-job training and refresher courses.

07.3. Additional information. [OPTIONAL]


PE 08. ESG issues impact in selection process (Private)


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