2022 was a year of upheaval. The Ukraine war – first and foremost a humanitarian disaster – led to political and economic crises across the region and beyond. Inequality rose, the climate crisis continued to unfold, and a global recession began to loom, pushing an increasing number of vulnerable people into food insecurity, reduced energy access and poverty. At FMO, we believe that – in these critical times – we need to make ambitious choices to create more impact by better serving our customers and taking risks that commercial parties are not (yet) willing to take. The turbulent global macroeconomic conditions impacted FMO's overall financial performance significantly by reductions in equity valuations and an increase of loan impairments. As a result, over 2022, we report a net profit of €1 million.
For 2022, we set ambitious targets for our total new investment volume of approximately €2.8 billion. While our overall portfolio grew, we ended the year at €2.4 billion of new investments, nearly €500 million higher than the year before. The €2.4 billion consists of €1.8 billion in FMO investments, €153 million in public funds’ investments and €457 million in mobilized funds’ investments.
Our impact targets were also ambitious. At year-end, we report mixed results. With respect to reduced inequalities (RI), our overall RI-labelled total committed portfolio amounted to €4,453 million, which is above our target of €4,275 million. We achieved €810 million in RI-labelled new investments, which fell short of our €1,105 million target. This can be attributed to several factors including (i) political unrest in a number of least developed countries which resulted in an even more challenging investment climate, as well as (ii) the longer lead time it takes to develop these projects post-COVID.
With respect to contributing to climate action, our Green-labelled total committed portfolio amounted to €4,427 million, above our target of €4,310 million. This was, among others, driven by an increase in Green-labelled new investments which came in at €1,003 million compared to a target of €1,070 million. This is nearly twice as much as we achieved in 2021.
In addition, we achieved several important milestones to advance our impact. In 2022, we opened a new regional office in Costa Rica covering Latin America and the Caribbean, increasing our local presence to manage risk and further connect with local communities. By publishing our Climate Action Plan, we provided a framework to fulfil our SDG 13 objectives and our commitment to a just and inclusive transition. We aim to reduce emissions in our power generation portfolio by 50 percent by 2030 in line with our commitment to phase out fossil fuel finance in our direct investments.
The war in Ukraine, the economic and political crisis in Sri Lanka, as well as the political unrest in Myanmar, all had profound influence on people's livelihoods, affecting our customers in these geographies as well. Our non-performing loans (NPL) percentage increased from 9.5 percent in 2021, to 11.9 percent in 2022, with the three before-mentioned countries accounting for almost 31 percent of this total (just over €200 million).We report a net profit of €1 million. Since the implementation of accounting standard IFRS 9, our financial results have been more volatile, as the fluctuations of the valuation of our equity investments are reflected in the profit and loss. The income generated through our loan portfolio, however, more than sufficiently covered our operating expenses.
Compliance with current and new regulations is an ongoing priority for us. We kept on track with key regulatory projects such as the LIBOR transition and made progress toward the implementation of the EU’s Sustainable Finance Disclosure Regulation (relevant for the FMO Investment Management funds) and the European Central Bank (ECB) requirements related to the disclosure of climate-related risks. As a follow up to our Financial Economic Crime (FEC) Enhancement program (launched in 2020, to ensure full compliance with the Anti-Money Laundering and Anti-Terrorist Financing Act and the Sanctions Law) we have further enhanced our KYC capabilities while embedding the KYC department in the frontline of the investment process.
We continued to focus on staff wellbeing and engagement. For example, by introducing the ‘Future of work’ policy, a pilot designed to facilitate hybrid and flexible ways of working in a post-COVID-19 environment. Working remotely abroad is now formalized, providing opportunities for our employees to e.g., spend more time with family abroad.
The focus on wellbeing and engagement is especially important, as FMO is growing in number of employees; we are expanding our team to meet the increased workload related to our rising ambitions and the expectations of our stakeholders. Additionally, we have changed our way of working to fulfil our above-mentioned KYC-objectives. To further facilitate the growth and changes within our organization, we are increasingly streamlining our processes and enhancing our efficiency. We will implement an agile way of working and effectuate significant upgrades to our IT systems. We realize that absorbing all these and other changes as an organization can sometimes be challenging. We are thankful to our staff for being flexible and for their continued focus on making impact.
In 2022, we completed the expansion of the Management Board from three to five members. In September, Franca Vossen joined us as Chief Risk Officer. In December, Peter Maila joined us as Co-CIO next to Huib-Jan de Ruijter, now also Co-CIO. As of September, Fatoumata Bouaré, FMO’s Chief Risk & Finance Officer since 2017, continued as Chief Finance & Operations Officer, a new position within the board. With these changes, we believe the Management Board’s capacity will be better aligned with the size and complexity of the organization.
In close collaboration with our stakeholders, we updated our strategy toward 2030, titled ‘Pioneer-Develop-Scale’, which refers to our so-called ‘progression model’. This model shows our long-term commitment to companies, supporting them from an initial high-risk phase to the point where commercial investors can (partially) take over financing from FMO. While we concluded that the direction of our previous strategy was right, we added focus and a clear ambition to maximize our impact. By 2030, our ambitious goal is to have realized ten meaningful innovations, and to have an investment portfolio of at least €10 billion in both SDG 10 and SDG 13. Please visit our website for more information on our Strategy 2030.
We are setting yearly ambitions to step by step together further strengthen our organization. Now that the Quality of Direction – our long-term strategy and its implementation plan – has been renewed, we will zoom in on the Quality of our Interaction, how we work together as an organization to maximize our impact. We will work on this, amongst others, by further embedding the desired behaviors related to FMO’s values within the organization and through senior leadership development, as we acknowledge the importance of role modelling.
Given the current geopolitical conflicts, high levels of inflation and threat of a global recession, the global outlook remains uncertain. Very recently we have seen the devastating impacts of the earthquakes in Turkey and Syria. Our hearts go out to the victims and all who have been affected. Turkey is one of FMO’s largest country portfolios. Although the direct impact on our customers seems limited, it is too early to assess the indirect economic impact of the disaster.
Michael Jongeneel, CEO of FMO: “While achieving growth and maximizing our impact will be challenging in these uncertain but critical times, we see it as our role to be countercyclical and focus on the long term, to invest when others shy away. Ultimately, it is people in emerging markets who suffer the most and we are driven and determined to do everything in our power to support them.’’
For more information, please see the annual report: FMO | ANNUAL REPORT
