1 Numbers represent FMO investments only.

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On behalf of the Management Board, Linda Broekhuizen, Chief Executive Officer a.i. of FMO: “The world has entered a new phase of the pandemic with the rollout of the COVID-19 vaccines and new variants of the virus. One positive outcome of the pandemic is that the short development time of these vaccines has shown that it is possible for countries and international organizations to rally together to achieve a common goal. An approach also required in addressing two of the most persistent global issues we face today: the climate crisis and inequality.

While we welcome the systemic change and steps taken towards addressing the climate crisis, includingthe new EU regulations on sustainable finance for which FMO is getting ready, the recent IPCC Report isa stark reminder that immediate action is needed. As UN Secretary-General António Guterres put it: "greenhouse‑gas emissions from fossil-fuel burning and deforestation are choking our planet andputting billions of people at immediate risk. Global heating is affecting every region on Earth, with many of the changes becoming irreversible". The issue of inequality is also reaching critical levels, furtheramplified by the lack of access and uneven distribution of vaccines in many of the markets in which we operate. These topics will, therefore, remain front and center in FMO's 2030 strategy review.

To combat these increasingly pressing issues, we strongly believe that greater collaboration is the way forward to scale up impact. This is why we have turned the spotlight onto forging high-impact partnerships. Together with DFC, the U.S. International Development Finance Corporation, we launched the DFC-MASSIF COVID-19 Response Co-Financing Facility for USD 75 million to support micro-, small-, and medium-sized enterprises impacted by the COVID-19 crisis. Furthermore, we were entrusted by the UK government to manage their ‘Mobilising Finance for Forests’ program aimed at unlocking private sector investment in projects that protect and restore tropical forests across Africa, Asia and Latin America. FMO Investment Management launched a new USD 150 million compartment for the NN-FMO Emerging Markets Loans Fund with one single investor, demonstrating the continued interest among investors to invest alongside FMO.

Critically important in FMO’s immediate future is our Financial Economic Crime (FEC) Enhancement program to demonstrate full compliance with the Anti-Money laundering and Anti-Terrorist Financing Act (in Dutch: Wwft) and the Sanctions Law by the end of 2021, as agreed upon with DNB, which has received our dedicated attention and will continue to do so moving forward. In the past six months we further intensified our efforts and freed up temporary resources to support the remediation effort to align Know Your Customer (KYC) files with best practices and (inter)national standards to ensure we meet the agreed deadline. This means we also chose to do less new business, accept a smaller pipeline of projects and that, ultimately, we will not achieve year-end targets for portfolio growth. However, this has not yet impacted our current financial results, which show an improvement in the first half of 2021.

We truly appreciate the resilience and dedication of our employees as we stepped up our efforts on KYC, all while working remotely. In the past six months, we increased our focus on employee wellbeing to maintain and build resilience.

Financial performance

In 2020, following the COVID-19 pandemic, we reported a loss of € 205 million resulting from a substantial devaluation of FMO’s private equity portfolio and higher impairment levels. In the first half of 2021, this picture has improved. Global equity prices partially recovered across sectors and geographies, leading to a net profit of € 198 million. The USD appreciation during the first half of 2021 also had an upward effect on the financial performance of our equity investments.

Although global conditions remain uncertain, deterioration in the credit quality of our customers has been limited and few new loan defaults have occurred. The impact of the COVID-19 pandemic on the non-performing loan (NPL) ratio remains relatively limited. The NPL ratio increased from 9.1% in 2020 to 9.8% in the first half of 2021, which is mainly explained by new NPLs in Myanmar, because of the military coup last February. Furthermore, revised GDP forecasts, have had a positive effect on the 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. At the end of June, our total capital ratio was 25.0%, which remains above the combined ratio of the SREP minimum and FMO’s internal requirements.

Total new investments

Outlook

Looking ahead to the second half of 2021, Broekhuizen says: “As of September 1^st, we will welcome Michael Jongeneel—who was the global lead for sustainable finance and partner at Bain & Company—as our new CEO. As of the same day I will depart FMO. Let me take this opportunity to say it has been a privilege to have partnered with so many inspiring entrepreneurs all over the world, and after 21 years the time has come for me to pursue other opportunities outside FMO.

Our financial forecasts suggest that the current upward trend in global equity prices will continue and, as such, that FMO will exceed its budgeted net profit by year-end. However, we continue to face uncertainties around COVID-19 and currency movements in the market, which could negatively influence our year-end results. The long-term effects of COVID-19 since the pandemic on the NPL levels are currently unknown. In addition, the lower new investment volumes realized in 2020 and 2021 will have a longer-term impact on FMO’s financial results. Therefore, later this year, our focus will be on rebuilding FMO’s portfolio and on managing our resources effectively to achieve this goal as well as to ensure we continue to comply with (new) regulatory requirements.

In the meantime, we have intensified our engagement with our stakeholders including the Dutch State, regulators, NGOs, customers, and partner organizations in taking important steps to prepare for the future. First, we launched our Position Statement on Fossil Fuels in Direct Investments. FMO commits to further reducing fossil fuel investments by no longer directly investing in upstream or mid-stream stand-alone fossil fuel-related activities. Second, following approval from the Dutch Senate in July, Invest International was officially incorporated on July 27th, 2021. Invest International will be fully operational on October 1st, 2021, as of which FMO’s NL Business team and activities will transfer to this new entity.

Several complex projects will continue to receive our full attention. In July, we learned that the CEO of our former client DESA was convicted of involvement in the murder of Berta Cáceres, human rights activist and chair of COPINH, the organization that opposed the construction of the hydroelectric facility Agua Zarca. Learning from this experience and from other complex projects is an ongoing process, and these learnings continue to feed into how FMO conducts its business.

In the coming months, all eyes will be on three key global events that will bring the world together; the decisions taken there will shape our collective future. Through the UN Food Systems Summit, The COP15 on Biodiversity and COP26 on Climate, we hope the feeling of togetherness will translate into action that the world needs. As for FMO’s part, we will be ready to fully contribute as impact investors: through empowering entrepreneurs, reducing the inequality gap and fighting climate change.”

For more information, please see the interim report.