Reporting – FMO (Netherlands Development Finance Company) (2016)
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PROJECT FINANCE ADVISORY SERVICES
Total number mandated in the reporting period: 0
PROJECT FINANCE TRANSACTIONS
Total number that reached financial close in the reporting period: 17
Totals 3 14 0
Totals 3 14 0
Sector Category A Category B Category C
Mining Infrastructure 3 4 Oil & Gas Power 8 Others 2 Region Category A Category B Category C
Americas 1 3 Europe, Middle East & Africa 1 8 Asia Pacific 1 3 Country Designation Category A Category B Category C
Designated1 Non-Designated 3 14 Independent Review Category A Category B Category C
Yes 3 14 No
1Designated Countries are those countries deemed to have robust environmental and social governance, legislation systems and institutional capacity designed to protect their people and the natural environment. For the list of Designated Countries, go to: http://www.equator-principles.com/index.php/ep3/designated-countries
PROJECT NAME REPORTING FOR PROJECT FINANCE TRANSACTIONS
No. Project Name Sector Host Country Name/ Project Location Year of Financial Close
1 Contourglobal Hydro Cascade CJSC Power Armenia 2016
2 FRV Solar Holdings IX BV Power Jordan 2016
3 Alisios Holdings S.A Power Costa Rica 2016
4 CECA SL Generation Limited Power Sierra Leone 2016
5 Elgon Hydro SITI (PV) Power Uganda 2016
6 Generation Renovable De Honduras S. Power Honduras 2016
7 Sindicatum Renewable Energy Company Power Philippines 2016
8 Al Sharika Al Mahaliya Li Aamal Power Jordan 2016
9 Irrawaddy Towers Asset Others Myanmar (Burma) 2016
10 Elz Saglik Yatirim A.S Others Turkey 2016
11 Heksagon Kati Atik Yonetimi Sanayi Infrastructure Turkey 2016
12 HT DRC Infraco S.A.R.L Infrastructure Congo, Democratic Republic of 2016
13 HTT Infraco LIMITED Infrastructure Tanzania 2016
14 Kingston Freeport Terminal Infrastructure Jamaica 2016
15 LISI FO LLC Infrastructure Georgia 2016
16 Meridian Port Service Limited Infrastructure Ghana 2016
17 Transambiental S.A.S Infrastructure Colombia 2016
PROJECT-RELATED CORPORATE LOANS
Total number that reached financial close in the reporting period: 0
IMPLEMENTATION OF THE EQUATOR PRINCIPLES
In 2006, the Netherlands Development Finance Company (FMO) adopted the Equator Principles (EP) to create a risk management framework for determining, assessing and managing environmental and social risks in projects.
FMO believes that good economic, environmental and social (E&S) management, and corporate governance, are interrelated. Therefore, we are convinced that there is a strong business case for the incorporation of E&S issues in business strategies. As a consequence, FMO recognizes the value of considering environmental and social criteria when financing and therefore decided to endorse the Equator Principles. The main objective is to express our commitment to mainstreaming sustainability considerations in financial best practice throughout the sector and effectively apply environmental and social criteria in all financing transactions that FMO concludes.
As stipulated by our Environmental & Social (E&S) policy, FMO has been using the Safeguard Policies / IFC Performance Standards (IFC PS) since the year 2000. Due to the new reporting requirements requested in the third generation of EP (EP III) to further breakdown the categorized investments by sector, region, and independent review, we have simplified our quantitative reporting to cover the exact scope of the EP III.
Additionally, FMO applies the safeguard policies and the IFC PS to all its financing, including financing under US$10 million and not only our project finance transactions but corporate finance as well. Although indirect investments are not within the scope of Equator Principles, we still work with our financial institution (FI) clients and private equity funds (PEF) in which we invest, to improve how they handle the environmental and social risk in their portfolios. Depending on the risk category, we expect the FIs and PEFs to apply certain environmental and social standards when financing or investing in their clients. Basically, we work with FIs and PEFs to establish and maintain an E&S Management System to ensure that its investments meet (or over time become compliant with) FMO’s requirements. Through this, we identify potential value creation that can be achieved with these clients. Therefore, FMO goes further than the Equator Principles’ requirements.
FMOs ENVIRONMENTAL & SOCIAL POLICY
FMO can work with a broad array of privately owned companies, financial institutions (FI) and private equity funds (PEF). It chooses not to select clients which are part of our Exclusion List. The Exclusion List relates to activities that are not supported by development banks such as FMO due to their unacceptable nature (i.e. child labor). See FMO’s website for the full list (http://www.fmo.nl/exclusion-list). Moreover, FMO also requires its FI and PEF clients to apply this Exclusion List to the clients they select in their portfolio.
ESG Integration into Investment Process
FMO considers ESG issues integrated into the organisation. Almost all departments involved in the credit process have ESG expertise or exposure to ESG issues. Investment managers are responsible for addressing ESG issue with low risk clients and work together with E&S officers on high risk clients. The same applies to the credit analysts in the credit department. Legal counsels work together with deal teams to incorporate ESG clauses in the contracts and our portfolio management departments work on monitoring ESG actions and reporting that clients have to undertake.
FMO evaluates (on a risk based approach) all of its financing against the IFC Performance Standards regardless of asset class and amount of investment. Should ESG gaps be identified at our clients we work with them to develop an Environmental and Social Action Plan (ESAP) and/or Corporate Governance Plan to close these gaps according to the IFC PS and our Corporate Governance Policy. Within our investment directorate there are E&S officers who participate in the deal teams together with the investment officers to carry this out. E&S staff all report directly to their team managers/directors who together are all responsible for ensuring that FMO implements its E&S policy. Ultimately, management and supervisory board are responsible for FMO’s ESG targets. FMO currently has an organisation wide target where we aim to achieve an implementation of at least 85% of our ESG action items due in reporting year, which is tracked in an internal IT system called SusTrack. This is one of FMO’s non-financial targets, which is included in the annual report.
All our direct investment clients (including those in which we take equity) are required to comply with national E&S law as a minimum standard, and with the Environmental and Social Performance Standards, as developed by the International Finance Corporation (IFC), member of the World Bank Group, whichever stricter. To help our direct investment clients establish sound E&S practices, we use a practical framework. The framework comprises of four parts: (1) Risk Categorization of clients, (2) Establishing applicable requirements, (3) Environmental and Social Action Plans and (4) pricing incentives.
(1) Risk Categorization of Clients All new and existing clients are subject to a Risk Categorization of their (potential) Environmental and Social impacts. There are four risk categories A, B+, B and C: A = high risk: Projects / clients with potential significant adverse social or environmental impacts which are diverse, irreversible or unprecedented. B+ = medium high risk: Clients with potential adverse social or environmental impacts that are generally beyond the site boundaries, largely reversible and can be addressed through relevant mitigation measures. B = medium risk: Clients with potential limited adverse social or environmental impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures. C = low risk: Projects with minimal or no adverse social or environmental Impacts. The categorization of clients into the A, B+, B, or C category is largely based on an assessment against the applicable IFC Environmental and Social Performance Standards. At the same time, we cooperate closely with the European Development Finance Institutions (EDFI’s) with the purpose to harmonize our definitions and requirements.
(3) Environmental and Social Action Plans
Based on the outcomes of the assessment carried out, an Environmental and Social Action Plan (ESAP) is to be agreed upon as necessary, with clear and practical milestones to be achieved within a certain period of time. The ESAP would normally allow clients a three year period at the maximum to reach full compliance with the requirements. For clients in category B and C, no in-depth assessment is required. However, on a voluntary basis we try to identify potential value creation that can be achieved with these clients. The ESAP is, in cooperation with the client, made “SMART”, i.e. Specific, Measurable, Achievable, Realistic and Time-Bound, and included in the loan documentation. Non-compliance with key milestones of the ESAP constitutes an event of default under the loan documentation. For FMO’s direct equity transactions, the ESAP shall be firmly agreed and under implementation before disbursement of FMO’s funds and the E&S principles applied by the company shall be firmly constituted in the Shareholders Agreement. Effective implementation of the ESAP adds value to the client, it mitigates E&S risks and it contributes to E&S development impact that FMO achieves through its financing.
(4) Pricing Incentives/Penalties
FMO can support the E&S business case in structuring its financial products. From a risk-return perspective, FMO is able to support implementation of major milestones of the ESAP by offering pricing incentives and/or requiring pricing penalties (in case of non-compliance with the Environmental and Social Action Plan).