June 2003

FMO SOCIAL POLICY & MANAGEMENT SYSTEM

“Labour Standards in Development Finance” ConferenceWashington DC, 18 April 2006

Content

I. FMO in a Nutshell

II. Why did FMO adopt a Social Policy?

III. Introduction of Social Policy into the organization

IV. FMO Social Policy Criteria

V. Social Management System

> Development ImpactTo 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 InvestmentsAppropriate economic and financial returns are a pre-condition for

effective risk partnership and continuity.

I. FMO in a nutshellTwofold mission

5142

7

Dutch State

Dutch Banks

Other

Shareholder structurePublic-private partnership (share ratio %)

Bron: FMO

> Operation at “arms length” from Dutch government

> Financing on commercial terms plus:

- Additionality

- Catalytic role

- Environmental & social standards

- Corporate governance

FMO features

> Financial institutions

- Indirectly servicing SME’s

> Private enterprises

> Dutch & other European companies investing in &

exporting to developing countries

FMO’s Clients

12

32

14

41

Africa

Asia

Europe

Latin America

Geographical spread portfolioEUR 1.8 billion gross (% portfolio, including commitments)

Bron: FMO

> 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

Sector focus

Food for thought

““We were not developing wealth for We were not developing wealth for

its own sake, wealth is the means its own sake, wealth is the means

and people are the ends.”and people are the ends.”

Franklin D. Roosevelt on "Century of the Common Man."

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

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

92 96 98 2000 200294

2000 OECD GUIDELINES

1999 UN GLOBAL COMPACT

1993 : WORLD CONFERENCE ON HUMAN RIGHTS

1995 WORLD SUMMIT ON SOCIAL DEVELOPMENT

2000 UN MILLENIUM DEVELOPMENT GOALS

2003 WB REPORT ON UNIONS & COLLECTIVE BARGAINING

1992 EARTH SUMMIT

YEAR

EVENTS

GLOBAL TREND: SOCIAL ISSUES ON INT’L AGENDA

Labour on International Agenda

> World Conference on Human Rights - 1993- 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

Labour on International Agenda (cont’d) > The OECD Guidelines - 1999/ 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

> General- 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

Guiding Instruments

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

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

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

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

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

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

Social Focal Points (SFP)

Social Specialist

Commercial Department

SFP

Commercial Department

Commercial Department

SFP SFP

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

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)

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

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

FMO Social Policy & Score Card

MATRIX

Social Policy

Management System

Performance

Child Labor

- - -

Trade Union issues

+

+

+

Retrench-ment etc.

+ + -

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

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

www.fmo.nl