We believe financial institutions have a vital environmental and social role to play. Uniquely placed at the center of the economy, they can engage in constructive discussions with their clients to improve environmental and social performance.
In 2012, FMO continued to encourage banks to play a role in society beyond the purely financial. As shown by our 83% score on our Client Satisfaction Survey, FMO’s clients highly value the experience and expertise we bring in environmental, social and governmental (ESG) issues, as well as our role in bringing parties together to promote positive change in ESG.
This approach continued to yield results in Nigeria, where FMO brought together the banking sector for an ESG roundtable. We have worked in the country for eight years, during which time ESG has posed quite a challenge. Through the sector-wide ESG initiative, FMO catalyzed the Nigerian financial industry to create sustainable banking principles that level the playing field by allowing banks to address environmental and social issues without fear of losing business to rivals. The involvement of the Nigerian Central Bank was a boon, and will help increase the chances of long-term success.
Our efforts in Nigeria included helping develop and ensure the adoption of a set of principles and sector guidelines on agriculture, oil, gas and power by the Nigerian Bankers’ Committee, a forum of all the banks’ CEOs and the Nigerian Central Bank. We also co-convened a sector-wide workshop to support the industry in implementing the principles and guidelines.
In Bangladesh, we brought together DFIs and Financial Institution clients in a study tour intended to familiarize them with environmental and social challenges in the ship demolition, garment and textile industries. In Paraguay, we convened CEOs of several local banks to discuss sustainability challenges, resulting in the signing of an agreement to start developing sustainable banking principles in the country.
We see and increasing demand for financing for micro, small and medium-sized enterprises (MSMEs) in many developing countries. These MSMEs are the motors of local economies yet lack access to finance in many of the countries where we work. Our loans to local banks help ensure that these vital companies receive the financing they need, which in turn gives many people access to finance. We supplement our financial services with capacity development, for example by hiring an MSME development consultant for a bank in Costa Rica.
FMO continues to believe in microfinance as a strong tool for development, provided that it is applied to productive ends and everything is done to prevent client over-indebtedness. Our direct investments in consumer finance are low, but when one of our clients is engaged in consumer finance, we apply the Smart Campaign’s Client Protection Principles (CPP) using a risk-based approach. These cover areas including avoiding over-indebtedness and ensuring transparent pricing and ethical staff behavior. In 2012 we worked on a new policy to formulate guidelines for a risk-based selection of those financial intermediaries with whom FMO should work on CPPs. For high-risk clients, our aim is to incorporate the CPPs in every step of the investment process, including assessment of the client, implementation of a CPP action plan and monitoring.
FMO is also a signatory to the UN Principles for Responsible Investment (UNPRI), and a founding signatory sponsor of the UNPRI Principles for Investors in Inclusive Finance (PIIF).