LP Corner

01. As a leading impact investor, FMO supports sustainable private sector growth in developing countries and emerging markets by investing responsibly in ambitious projects and entrepreneurs. Could you help us understand your current portfolio in India? What are the major sectors or segments across which FMO’s Indian portfolio is distributed? Does FMO plan to expand its footprint in India?

Our portfolio currently amounts up to EUR 850mln. Since 2016 FMO has a clear focus on financial intermediation sector, energy and Agriculture, food and water (AFW) with the aim to contribute to SDG 8, 10 and 13. Creating positive impacts are key to our investment decisions. The portfolio is distributed as follows: EUR 500mln in financial intermediation (both debt and equity), EUR 130mln AFW, EUR 110mln in Renewable Energy (RE) and EUR 115mln in diverse sectors. We are interested to expand our footprint, however are bound to stay within the boundaries of our country limit. FMO is regulated as a bank and therefor has a well-defined risk framework.

02. Could you briefly elaborate FMO’s investment strategy in India for the calendar year 2022? Does FMO plan to expand its footprint in India?

FMO will continue to look for good opportunities in the three mentioned sectors. As the market is more and more driven by revolutionary technology solutions part of our investments will be done in venture capital supporting young and fast growing tech companies.

03. IIC’s database reveals that Impact enterprises in India raised ~6 Bn. across 338 deals (in key sectors of financial inclusion, agriculture, education, health and climate-tech in the calendar year 2021). What are your views on the impact investing market in India? How does it compare with other emerging markets where you invest in?

The India impact investing market is growing fast and is well developed. One of the explanations might be that since the development of the mobile phone market it became clear to the Indian business market that you actually can earn money by offering a low cost service to a large underserved population. A lot of people got access to information and on the back of that a lot of solutions for the bottom of the pyramid became available. Combined with a relatively well educated and ambitious group of young people technology solutions are widely introduced. The high growth of the last ten years has also resulted in a severe pollution problem which does require investments in green energy and further electrification of the transport sector. Compared to other emerging markets India has a focussed attention on impact investing with a clear focus on reducing poverty.

04. FMO is one of the unique global impact investors providing long-term financing solutions through 4 key instruments - loans and syndications, private equity, guarantees and technical assistance through capacity development. What type of assets are broadly covered under these 4 instruments? How does FMO envision its value generation and social impact across these instruments?

FMO can and does use all of its instruments to service private entrepreneurs in the 3 mentioned sectors. At the time of making an investment we do formulate a value creation plan and discuss that with our customer. In case necessary we support the implementation of that plan with providing technical assistance. In case we do have the ability to appoint a board member we positively discriminate woman as our Board representation in order to create more diversity in Boards.

05. FMO supports sustainable business in thematic areas of Agribusiness, Food and Water, Energy and Financial Institutions. Could you briefly share your larger philosophy for investing in these segments? How do you think these segments were affected with the pandemic in your portfolio? What market trends do you foresee emerging for these segments going forward in 2022?

FMO selected the 3 sectors as by investing in these sectors we believe we can best contribute to SDG 8, 10 and 13. Recently we added “forestry” as part of our AFW market. The financial intermediation was affected by the pandemic. The tech sector benefitted of the pandemic and new solutions emerged especially in the segments of edtech and health tech. FMO is only indirectly exposed to these segments via banks and more specifically impact fund managers. Markets are always difficult to predict. A clear trend is that technology will further drive changes in the behaviour of people and also make services more readily available for a broader public. The financial sector will change strongly in the coming years. Tech solutions will have to be integrated in financial institutions and they will be forced to become more transparent on who and what they finance. In AFW sector tech will further support the improvement of crop yields and logistics.

06. FMO uses a robust impact measurement methodology incorporating ‘Strategic Labels’ (includes Green Label and Reducing Inequalities Label) and ‘Impact Indicators’ that is broadly aligned to the “Joint Impact Model”. What have been some of the critical challenges and learnings in implementing such a rigorous impact management methodology; and how has it driven performance for your partners?

The labels are designed to help us steer our portfolio, we have internal targets that we try to reach per every year while the Joint Impact Model helps us quantify the impact that we have achieved. It has helped us gain insights to discuss our strategy setting. While labelling has been an important part of our impact framework, the challenges remain with standardization of the market. Alignment with the EU taxonomy and other important regulations that are coming will help us shape our labels further. The Joint Impact Model started as a project to help align methodologies with the impact measurement industry. The hardest part was finding alignment between us and other parties. However we put a lot of hard work into it and together with 10 other DFI's and MDB's we are proud to have made it open access. This means it can be used by any impact investor who is interested in joining this community of practice and sharing methodologies with each other as we continue to improve the JIM.

07. FMO has very recently launched a new initiative - Future FMO Biominded Diversity. We are curious to learn more details about this initiative. Could you please walk us through the objectives of this initiative.

Future minded is FMO’s corporate magazine: every few months, a new issue is published, highlighting a topic that is seen as critical for the work we do and the impact we have. For the last issue, we picked the theme of Biodiversity to assess how the proper valuation of natural capital is taken into account in our impact work.

It was also a special edition honoring the work and dedication of Linda Broekhuizen, our former interim CEO, who was very committed to this topic while at FMO. We therefore decided to explore the new perspectives on reaching the Sustainable Development Goals in emerging economies through a biodiversity lens and it was very interesting to learn from new and existing partners. The main takeaway from this issue was that from accounting systems to conservation efforts, we all have a role to play in making nature everyone’s business. Read the issue here.