There are eight years left for the world to achieve the Sustainable Development Goals and we still have a long way to go. The widely differing way in which countries have recovered from the pandemic has caused inequality to increase. And the global climate is still on course to breach the 1.5-2 degree limit of the Paris Agreement. More than ever, there is an urgent need for the private sector to work with governments and civil society to find, nurture and finance projects that will bring about change.
Despite travel restrictions, we continued to support our customers to deal with the pandemic. And while we did not achieve our target on new investments, we exceeded our target on the mobilization of third-party funds and nearly achieved our target for public fund investments. Our impact numbers show the same diverse picture. We exceeded our target for new investments in reducing inequalities (€714 million in 2021, target was €596), but did not reach our target for new investments in green projects (€544 million in 2021, target was €592), while our outstanding portfolio supported an estimated 644,119 direct and indirect jobs (2020: 672,492).
Building on the enormous drive of our employees and the strength of our reputation, we created impactful partnerships such as Mobilising Finance for Forests with the UK government. We also committed to Climate Investor Two, a blended finance facility focusing on water that follows its renewable energy sibling, Climate Investor One. In addition, we supported the successful establishment of Invest International and the transition of NL Business to this new entity, published a position statement on fossil fuels and signed on to the Clean Energy Transition at COP26. We also continued to give ample attention to several complex projects. Learning from one another, and from mistakes made in the past, is a key factor in this.
In 2021, we completed our Financial Economic Crime enhancement project. This included an extensive Know Your Customer file remediation, tailored to the specific requirements of developing and emerging economies. This asked a lot from our staff, and it is due to their ongoing perseverance, dedication, and resilience that we have been able to stand by our customers and at the same time successfully complete this project as confirmed by an independent party.
FMO has made a substantial profit in 2021 of € 491 million. This is a significant improvement compared to the end of 2020 when we reported a loss of €205 million. There are three main drivers, which explain this development. First, economies have largely recovered after the initial COVID-19 shock, which has led to a significant upward revaluation of our Private Equity portfolio. Second, the appreciation of the US dollar has had a positive effect on the value of our assets. As our investment portfolio is largely denominated in US dollar, fluctuations in the exchange rate strongly affect our financial results. Third, despite the initial negative outlook, we were glad to see that most of our customers were able to meet their financial obligations, which has led to a net release in our impairment levels.
FMO’s capital buffers exceed the minimum required by the Dutch Central Bank and the higher requirements defined by our internal risk appetite. The total capital ratio decreased to 23.7% (2020: 24.9%). The CET–1 ratio amounted to 22.5% (2020: 23.3%). This limited change is a result of an increase in risk weighted assets, driven by appreciation of the US dollar and application of Look Through requirements leading to increased deductions of Financial Sector exposures from own funds.
FMO’s diversification strategy, with exposures across sectors and countries, has proven effective during the pandemic as some economies and sectors have been affected less than others. FMO continues to receive an AAA-rating with a stable outlook from both Fitch and Standard & Poor's.
To maximize our impact, we have set high ambitions for 2022. We are aiming for ~€2 billion in investments from our own balance sheet, ~€300 million investments through public funds (managed by FMO) and ~€500 million in capital mobilized from third parties by year end, expanding our staff base to further support these ambitions.
While pursuing our impact goals, international developments influence our markets. There are numerous concerns for national and regional stability and security across the world with potential consequences on displacement, involuntary migration, energy and food supply and price levels. We are deeply concerned for the people of Ukraine, following and assessing the situation in the region on a daily basis. Our direct exposure to the country and Belarus is around €230 million; indirect effects are still developing. We work with 14 customers in Ukraine, mostly in the agribusiness and renewable energy sectors. We are trying to stay in contact with our Ukraine customers as much as possible to support them.
In the coming years, several new regulations and requirements are coming into force that will affect FMO, including for example the EU Sustainable Finance regulation, ECB requirements related to the disclosure of climate-related risks and the LIBOR transition. FMO will focus on the implementation of these requirements, ensuring these are done in an efficient and effective manner. We will build on the experiences gained in the last two years in completing our FEC enhancement program.
We will continue to increase our engagement with civil society to discuss the dilemmas we face. This dialogue continues to challenge us and to support improving our approach at a time when stakeholder expectations are rising and the outside attention we have received with respect to the way we conduct business has increased.
Michael Jongeneel, CEO of FMO: “For me, 2021 was a year during which FMO took further steps to serve our customers and markets better in the future. Building on all the skills and knowledge of our diverse staff, I see a solid base for impact maximization and growth. As a regulated and accredited entity, FMO can be a key driver of change, mobilizing much needed funds to reach the SDGs. To be truly transformative in our impact, we will need to be bold, take risks, be innovative and try out different models – while transforming ourselves as well. We look forward to partnering with all our stakeholders on this worthwhile endeavor.”
For more information, please see the annual report.
