Michael Jongeneel, the CEO of FMO, has over 15 years of experience in sustainable finance, having previously worked with McKinsey, Triodos Bank, and Bain, where he founded and led the global sustainable finance practice.

FMO is a Dutch development bank structured as a bank from The Hague, The Netherlands, with a mandate to support private-sector. FMO is active in around 80 countries. It also manages funds on behalf of the Dutch government to maximize the development impact of private sector investments.

In addition to his role at FMO, Michael has held non-executive board positions in social enterprises and NGOs, including Oxfam International. He is also an author on future leadership and is personally committed to living a climate-neutral life. In an interview with Madan Lamsal and Mukul Humagain from New Business Age, Michael talked about FMO's long association with NMB Bank, climate financing and sustainable banking practices. Excerpts:

As a shareholder in NMB Bank, FMO has had a longstanding relationship with Nepal. Could you share the purpose of your current visit to the country?

One of the main purposes of my visit is to meet with officials of the NMB Bank. We have a longstanding relationship with NMB, and I make it a point to visit at least once a year to further strengthen that partnership. During the meeting, we reiterate our commitment to Nepal’s future development, particularly in the areas of hydropower and solar energy. Another key reason for my visit is to inspect one of the hydropower projects that FMO is financing with a loan together with eight other international lenders. Another interesting aspect of the trip was attending a climate finance conference, supported by the Nepal Bankers Association and Invest for Impact Nepal.

With over 15 years of experience in climate finance, how have you seen the sector evolve, especially since you joined FMO in 2021?

I believe the sector has progressed. We have been financing wind and solar parks for quite some time. The adoption has been relatively slow though. One of the few positive outcomes of the Covid-19 pandemic has been the shift to work remotely. But more importantly, it has highlighted the unpredictability of global events. As a result, people are now much more aware of the risks posed by climate change.

While we have seen an increase in climate finance, there is still a long way to go. That is why FMO continues to introduce new structures, ideas and initiatives, such as conferences like this, to raise awareness and encourage more active financing - not just globally, but also here in Nepal.

How has been your experience in Nepal where the ecosystem is predominantly driven by financial service providers focused primarily on net profit and delivering high returns to shareholders?

Financing climate initiatives sustainably is not an easy task. But that is what we are trying to promote. It is not just about funding a hydropower or solar park - it is about doing so with strong governance and adhering to environmental, social and governance (ESG) criteria. While we are optimistic about the progress, there is still a lot of variability. The work that NMB has done in the realm of ESG and sustainability is very positive, and we hope many others will follow suit. Without this approach, climate finance could be deployed in ways that aren’t truly sustainable. For example, when considering a hydropower dam, how does it impact the local environment? These factors need to be carefully addressed. We are seeing progress, and NMB is leading the charge. But there is still a long way to go.

As the largest shareholder of NMB Bank, how does FMO assist the bank in navigating local challenges such as regulatory barriers, risk management and the economic environment in Nepal?

We approach this in multiple ways. On one hand, we provide technical assistance, which includes not just financial support but also bringing in experienced personnel to help the bank grow. For instance, we work on improving their ESG practices and enhancing risk management. Additionally, we collaborate with the Nepal Bankers Association to advance these initiatives. On the regulatory side, I have been engaging with the Ministry of Finance. I plan to meet the central bank governor to discuss how to create a thriving environment for banks, which ultimately benefits Nepali businesses and the broader community. Our focus is not solely on the banks. It is about ensuring that the entire society reaps the benefits. We strive to support efforts in the regulatory framework, the banking sector, and specifically with NMB.  How would you assess the readiness of Nepal’s financial ecosystem to adopt climate-aware finance?

I would say a good start has been made. Last year, we collaborated with IIN to establish a course with the University of Pompei from Barcelona to educate 80 bankers in Nepal on ESG practices, which demonstrates progress in this area. We have also engaged in discussions with industry associations, such as IPPAN, and while steps are being taken, this is just the beginning of a longer journey. There is a growing understanding of the importance of climate-aware finance, and on a broader scale, Nepal has made significant commitments to achieve net zero emissions by 2045. The banks increasingly recognise their crucial role in this effort and the opportunities that lie ahead.

How does FMO engage with Nepal’s regulators and government bodies to ensure alignment with global banking standards and sustainable finance objectives?

One key element of our engagement is our discussions with the Ministry of Finance and the governor of the central bank. While they operate with their own autonomy and make their own decisions, we aim to support them in their efforts. I was particularly pleased to learn that among the 80 bankers, who participated in the ESG course, one representative was from the central bank. We strive to establish educational programs that are also accessible to individuals from regulatory bodies. Our approach is not just about engaging in discussions; we are committed to providing practical support as well.

FMO holds a substantial 13.69% stake in NMB Bank. How do you assess the bank’s performance regarding sustainability, governance and social impact?

I believe we can be very proud of what NMB Bank has achieved across all fronts. The focus on environmental and social aspects has been prominent for many years. Last year, we conducted a thorough evaluation of the governance practices, which was well-received by NMB. As a result, they implemented several changes based on our recommendations. I truly believe they are positioning themselves to be best in class in Nepal - and they already are. NMB serves as a role model for other banks in the industry. While there is always room for improvement, they really stand out in the Nepali banking landscape, and that is something that makes us very proud.

What initiatives is FMO implementing within NMB Bank to promote green financing and sustainable banking practices in Nepal?

We are actively pursuing several practical initiatives. Our technical assistance, particularly regarding the hydro and solar projects we announced this week, is a clear demonstration of our commitment. We also provide loans specifically earmarked for climate finance, such as those for solar projects. Additionally, we engage in discussions with the bank’s board of directors to explore how they can advance their overall climate finance strategy, both within the energy sector and beyond. This approach combines helping to shape a future vision with practical support by financing key initiatives.

You also mentioned the taxonomy. Could you explain what that entails?

The green taxonomy aims primarily to enhance transparency regarding where banks stand in terms of their green financing efforts. This is just the initial step. Transparency is crucial as it allows for comparisons and helps banks establish standards or targets for the next level of progress. While it is just the beginning of a longer journey, I believe it is a very helpful tool.

Beyond NMB Bank, what other sectors or projects in Nepal are of particular interest to FMO regarding sustainability and impact?

In addition to financing NMB, we are directly involved in hydropower projects and are keenly interested in how the energy sector will evolve in Nepal. We also engage significantly in agriculture globally, and we are exploring opportunities in Nepal’s agricultural sector. While there has not been any direct financing yet, we anticipate that it will come, particularly through NMB, albeit indirectly. Furthermore, we have an investment in the private equity firm Dolma Fund, which is active in various sectors within Nepal. We are eager to expand our presence in the country. Nepal is important to us, and we see numerous opportunities for development, even though there is still work to be done.

Can you share FMO’s long-term vision for NMB Bank? Does FMO plan to expand its investment or influence in the future?

Our long-term vision for NMB is to push beyond their current achievements. They are already recognised as the leading sustainability bank in Nepal, but we believe there is potential for them to do even more in this area. We have had productive discussions at the board level, and now it is a matter of how those ideas will be realised.

We are committed long-term supporters of NMB Bank, as evidenced by our recent initiatives, such as the signing of technical assistance agreements for hydropower and solar projects. While I cannot disclose specific plans regarding increasing our stake, since that information is commercially sensitive, I can say that we have been strong supporters of NMB Bank for nearly two decades, including Clean Energy Development Bank that merged with NMB.

Could you please share some of FMO's strategies for navigating Nepal's financial sector, particularly in light of the current economic and political landscape?

FMO's commitment to Nepal extends well beyond NMB Bank which is best illustrated by our support for the IIN initiative. We have invested significant resources into this initiative alongside our British and Swiss partners, aiming for the long-term development of Nepal. When we launched this initiative, there were about three Development Finance Institutes active in Nepal; now there are around ten. Our involvement in this way reflects our recognition of Nepal's growth potential. This approach is unique - one of the few instances where we engage in such a manner globally, highlighting FMO’s commitment as a Dutch development bank to Nepal's development.

The financial system is crucial in many countries, including Nepal, as access to capital drives progress. Without sufficient foreign investment, the pace of development will be hindered. Our long-term commitment is clear; this program has been running for three years now, and we are actively exploring ways to expand our efforts. I hope this provides a clearer picture of how FMO supports Nepal as a whole, beyond our relationship with NMB.

What role do you think the private sector finance should play in achieving Nepal’s development goals, particularly in areas such as clean energy, agriculture and SMEs growth?

I believe it is naive to think that governments alone can finance the Sustainable Development Goals by 2030. The private sector is crucial in this effort. We are encouraged to see that the private sector is relatively active in Nepal compared to other countries in Southeast Asia, which lays a solid foundation for progress. If the private sector commits to key areas - particularly green initiatives and renewable energy - it can significantly accelerate development. However, it is essential to consider how this commitment is executed. Emphasising ESG standards is vital; the private sector must recognise the importance of caring for our planet in the long term. Our focus should not just be on agriculture for the next three to five years; we need to ensure a good quality of life for future generations as well. If the private sector fully engages in this mission, I believe Nepal can accelerate its development significantly. This effort is necessary, as the government alone cannot achieve these goals.

In your personal life, you and your family aim to live a climate-neutral lifestyle and achieve net zero emissions by 2030. Could you please explain how you plan to achieve net zero?

I have made significant efforts to reduce my personal carbon footprint. I have been driving an electric vehicle for over 10 years and was fortunate enough to build a sustainable house nearly 15 years ago, equipped with solar panels that generate enough electricity for one and a half households. Additionally, I have adopted a vegetarian diet, significantly reducing my consumption of high-footprint foods, especially beef. While I have implemented many changes, there still is a small footprint I cannot eliminate. To address this, I purchased a small forest in the Netherlands, which I am cultivating to capture the CO2 emissions that I cannot avoid. This way, I strive to practise what I preach and work toward becoming truly net zero.

You visited Nepal 23 years ago in a personal capacity, and now you are here as a banker. What changes have you observed in how banking is conducted in Nepal over the years?

I have seen many positive developments in Nepal's banking sector. For instance, financial inclusion and literacy have improved, yet 30% of the population still lacks access to finance, indicating a need for further development. The key to this is digitalisation. Mobile penetration has reached 80%, with more mobile phones than people. However, there remains a 10% gap where people have mobile phones but no access to financial services, highlighting a significant opportunity for enhancing retail banking.

On the business side, it is challenging to generalise due to the sector's specialisation. But there's a pressing need for increased project financing. The concept of Environmental, Social and Governance (ESG) in banking should not be viewed merely as a cost. For example, in manufacturing, reducing waste benefits both the environment and operational costs. Therefore, bankers should adopt a more innovative approach in this area.

How significant is Nepal's sovereign credit rating when deciding to conduct business in the country or when Nepali banks and financial institutions seek funding?

When we begin investing in a location, we certainly consider the macroeconomic perspective. However, as a development bank, a high-risk situation does not necessarily deter us; in fact, it often draws us in. We tend to operate in areas where others might hesitate, which is why you can find us in countries deemed risky. Our focus is on the specific company we are financing. If that company has a stable track record and a promising outlook, we are willing to accept the associated risks. While we take macroeconomic factors, currency conditions, and regulations into account, there are numerous aspects to consider beyond just a rating. I understand the importance of sovereign credit ratings for attracting foreign investments, but our approach as a development bank is somewhat different.

(The interview was originally publihsed in the October, 2024 issue of the New Business Age Magazine.)