1. June 2003

2. FMO SOCIAL POLICY & MANAGEMENT SYSTEM
“Labour Standards in Development Finance” Conference
Washington DC, 18 April 2006

3. Content FMO in a Nutshell Why did FMO adopt a Social Policy?
Introduction of Social Policy into the organization
FMO Social Policy Criteria
Social Management System

4. I. FMO in a nutshell Development Impact Return on Investments
Twofold mission
Development Impact
To have a significant impact on the financial-economic, environmental and social development of developing markets, by providing private companies with financial means and know-how.
Return on Investments
Appropriate economic and financial returns are a pre-condition for effective risk partnership and continuity.

5. Shareholder structure
Public-private partnership (share ratio %)
Bron: FMO

6. FMO features Operation at “arms length” from Dutch government
Financing on commercial terms plus:
Additionality
Catalytic role
Environmental & social standards
Corporate governance

7. FMO’s Clients Financial institutions Private enterprises
Indirectly servicing SME’s
Private enterprises
Dutch & other European companies investing in & exporting to developing countries

8. Geographical spread portfolio
EUR 1.8 billion gross (% portfolio, including commitments)
Bron: FMO

9. Sector focus Financial sector: “brains of development”
Banks
Leasing, insurance and housing finance
Micro Finance Institutions
Infrastructure: “backbone of development”
Transportation (roads, ports, etc.)
Energy (water, power)
Telecom

10. Food for thought
“We were not developing wealth for its own sake, wealth is the means and people are the ends.”
Franklin D. Roosevelt on "Century of the Common Man."

11. II. Why a Social Policy?
Evaluation of FMO development impact (mid 90s)
Part of FMO Policy on Sustainable Development
- triple bottom line (People, Planet and Profit) - corporate governance - environmental policy - social policy - exclusion list
Social development a key element of FMO objective
- mitigation of social risks (FMO reputation and social justice)
- social development (added value) - social accountability

12. Why a Social Policy? (cont’d)
Professional upgrading
Risk mitigation in banking
Identifying trends & opportunities
Competitive edge
Investment bankers with a vision…
Global trend
Companies are increasingly being held accountable for the wider societal & environmental impacts that result from their operations
Companies no longer just sell their products, but also the circumstances under which these are produced

13. GLOBAL TREND: SOCIAL ISSUES ON INT’L AGENDA
2003 WB REPORT ON UNIONS & COLLECTIVE BARGAINING
2000 OECD GUIDELINES
2000 UN MILLENIUM DEVELOPMENT GOALS
EVENTS
1995 WORLD SUMMIT ON SOCIAL DEVELOPMENT
1999 UN GLOBAL COMPACT
1992 EARTH SUMMIT
1993 : WORLD CONFERENCE ON HUMAN RIGHTS 92 94 96 98
2000
2002
YEAR

14. Labour on International Agenda
World Conference on Human Rights
Renewed effort to strengthen and further implement the body of human rights instruments
171 States adopted by consensus the “Vienna Declaration”
ILO Declaration on Fundamental Principles and Rights at Work – 1998
Priority of core labor standards in the global economy
Global Compact – 1999
10 principles on human rights, labour and the environment
Based on Copenhagen Social Summit and ILO constitution

15. Labour on International Agenda (cont’d)
The OECD Guidelines / 2000
corporate governance
multinational enterprises
national OECD centers for lodging complaints against MNCs
WSSD – Johannesburg 2002
Increased participation of trade union sector in global sustainability debate
WB report on "Unions and Collective Bargaining“ – 2003
High unionization rates/ highly coordinated collective bargaining lead to lower inequality, decreased discrimination, improved economic performance
Premium on better labour standards in global production chain

16. Guiding Instruments General Labour Rights & Conditions
Universal Declaration on Human Rights
International Covenants on CP and ESC Rights
UN Conventions
OECD guidelines on Corporate Governance
Labour Rights & Conditions
ILO Conventions
Social & Cultural Impacts
World Bank/ IFC standards

17. III. Introduction of Social Policy
2000 
social policy approved by FMO Board of Directors
2001 
social specialist recruited
internal communication strategy
seminar for all of FMO
2002 
all investment officers trained
pilot phase
evaluation + advice to management
Following years  social training for all new investment staff

18. IV. Social Policy Criteria: Labor Issues
Core Labor Standards - Ban on Forced Labor (including role of security services) - Ban on Child Labor - Ban on Discrimination - Freedom of Association - Right to Collective Bargaining
Primary Labor Conditions - Remuneration - Health & Safety - Working Hours - Labor contract - Retrenchment

19. Exclusion List
Preliminary decision making tool for “go or no-go” scenario
Products/ activities that are deemed illegal at the international level
Products/ activities that are not in line with FMO’s view of creating development impact
Management tool for both FMO as well as for its FI clients

20. Labour Risk Categories
Category A or B+ projects
Large, infrastructure works or “Greenfield” projects
construction phase/ legal relationship with contractors
Primary sector (agriculture, extractive industries), with large numbers of unskilled/ temporary/ migrant workers
Labor-intensive industries, especially those situated in export processing zones or high risk sectors/ countries
Hazardous working conditions (physically demanding or risky work, handling of toxins, chemicals etc.)
Large-scale retrenchment
e.g. due to privatization

21. V. Social Management System
Commitment of top management
change in corporate culture
invoke change by setting the example
internal communication strategy
external expertise for sound boarding
Resources
human and financial
Training
integrated sustainability training
Procedures

22. IMR – Investment and Mission Review
Head of IMR also heads the Investment Committee!!!
Financial Analysis Unit
4 staff
financial-economic sustainability
second pair of eyes next to the investment officer
Environmental & Social Unit
8 staff (5 environmental, 2 social, 1 FI)
environmental and social sustainability
in deal team with investment officer
ESRS to finance proposal/ legal documentation/ portfolio management
Evaluation Unit
ad hoc evaluation of projects
2 staff

23. Social Focal Points (SFP)
Social Specialist
SFP
SFP
SFP
Commercial Department
Commercial Department
Commercial Department

24. FMO Social Procedure »parallel to FMO Environmental Procedure«
[Initial Phase]
determine Social Risk Category (A/ B+/ B/ C)
sector
country
determine appropriate steps/ actions/ division of labor
investment officer in consultation with Environmental & Social Unit

25. FMO Social Procedure (cont’d)
[Direct Investments]
Category A or B+ social specialist takes the lead
external impacts: Social Impact Assessment (as part of EIA)
labour issues: Social Assessment
E&S checklist and labour checklist
visit to site (interviews with HR manager/ H&S officer/ workers’ representative/ workers; objective evidence; H&S check)
third party consultation (contacts with local unions, NGOs, labor rights lawyers etc)
Category B  environmental specialist takes the lead
labour checklist (determine scope)

26. FMO Social Procedure (cont’d)
[Financial Institutions]
FI as a company
investment officer responsible
mostly Category B
assessment like direct investments
FI portfolio management
Environmental & Social Unit responsible
Category A/B/C, depends on portfolio profile
Environmental & Social Management System
FI course “Financing Sustainability”
FI ESMS support programme

27. FMO Social Procedure (cont’d)
[Management Decision Phase]
Investment Officer writes project proposal
Category A and B: Investment officer writes social paragraph in project proposal
IMR writes Advice to IC and Management
Category A and B+: Social specialist writes Social Review Summary as part of ESRS (annex to project proposal)
Category B: Environmental specialist writes ESRS (annex to project proposal)
If not all issues dealt with: follow up or negative advice

28. FMO Social Policy & Score Card

29. FMO Social Procedure (cont’d)
[Contracting Phase]
Category B (standard clauses):
Social Management System
Responsible person in Management
HRM and/or H&S staff
Annual Environmental & Social Reporting
If necessary: Social Action Plan
Additional for Category A and B+
Independent third party verification
Community liaison staff/ unit

30. FMO Social Procedure (cont’d)
[Monitoring Phase for A and B+ Projects]
Annual Environmental & Social Report
Conclusions in annual revision report
Regular visits to projects
check on agreed actions
check with management and employees
check with local unions, NGO´s, labor rights lawyers,…
Action if non-compliance
by or in consultation with the Environmental & Social Unit