Energy efficiency strategy, standards and investment

Paris alignmentReasoning
Some progressFMO includes a variety of energy efficiency improving activities as eligible for financing under its Green Methodology. Eligible activities generally adhere to best practice across sectors. In the case of financial intermediaries receiving Green Credit Lines, they must also apply these requirements. However, this guidance lacks concrete detail in some sectors (such as transport), and guidance for operations not covered by the Green Label (whether financed directly or through intermediaries) is less extensive.
Overarching energy efficiency first strategy/principle
Whilst FMO does not apply a full “energy efficiency first” strategy or principle across its operations, the Bank does require clients to explore energy efficiency options, through application of the IFC Performance Standards, in cases where there is significant (as determined by an expert judgement on a case-by-case basis) energy consumption.
Transport energy efficiencyBuilding energy efficiencyFinancial intermediary energy efficiency
FMO does not itself have a focus on transport sector projects yet defines eligible activities under the transport category of FMO’s Green Methodology which broadly reflect “avoid-shift-improve” initiatives. However, FMO’s guidance fails to anchor eligible activities for investment by financial intermediaries in this sector in more concrete standards or certification, reducing the ability to consistently safeguard use of FMO proceeds.The activities under the buildings category of FMO’s Green Methodology are usually eligible on the basis of certification by the best practice LEED or IFC’s EDGE Tool. Those “not yet certified or certified under another scheme” are also eligible, either if the certification process is in progress, or through proving the standard 20% minimum energy efficiency gain threshold applied for energy efficiency investments across the Green Methodology.Financial intermediaries receiving Green Credit Lines from FMO are subject to the requirements of FMO’s own Green Label Methodology. However, the same requirements do not apply to financial intermediaries that are not channelling funds under a Green Credit Line. Such clients may be required to apply “good international industry practices”, such as the IFC Performance Standards, but with less specific, concrete requirements.

Energy efficiency financing

Energy efficiency has a dedicated category of eligible activities in FMO’s Green Methodology. For energy efficiency investments to qualify as climate change mitigation activities under FMO’s Green Methodology, they are required to contribute to a minimum 20% reduction in either energy consumption or GHG emissions.

Included among energy efficiency activities eligible for a “Green label” are brownfield energy efficiency improvements in industry, public services and commercial, public, and residential buildings. An overarching principle of “no carbon lock-in” applies across green label transactions, intended to guard against possibly otherwise extending the lifetime of emissive assets with such investments. Greenfield energy efficiency in commercial and residential buildings are also eligible, although the broad qualifying threshold of “exceeding available standards and complying with high energy efficiency certification or rating schemes” is not specified further.

Beyond the requirements specifically for activities covered by the Green Methodology, FMO’s application of the IFC Performance Standards (and World Bank Group Environmental, Health, and Safety Guidelines as part of this) across its operations involves requirements on energy efficiency. The IFC Performance Standards include the broad requirement for clients to implement “technically and financially feasible and cost-effective measures” for energy efficiency.


Green buildings certified by LEED or IFC’s EDGE Tool are eligible for FMO’s Green label. Those “not yet certified or certified under another scheme” are also listed. For these instances, it may either be the case that the certification process has been started (but not finalised) and agreed in an action plan with FMO. It is also possible that certification is not applied for, in which case the 20% minimum energy efficiency gain threshold applies, to be evidenced by the developer through technical studies and comparisons with current practice.


Vehicle energy efficiency retrofitting, or replacement is also eligible under FMO’s Green Methodology. However, the threshold for minimum efficiency improvement for eligible investments is not consistently anchored in any sector-specific standards or guidance, and so the standard 20% minimum energy efficiency gain threshold applies. Although not explicitly named, the eligible activities under the transport category of the Green Methodology broadly reflect “avoid-shift-improve” initiatives.

Financial intermediaries

For any Green Credit Line issued to a financial intermediary client by FMO, the client is consequently subject to the Green Label Methodology. As a result, the same improvement requirement applies (to contribute to a minimum 20% reduction in either energy consumption or GHG emissions) for any activity relating to energy efficiency financed under this green credit line. Activities financed under other categories of the Green Methodology are in turn subject to the eligibility requirements therein (e.g. as detailed under the “Buildings” and “Transport” sub-headings above).

Although the same requirements do not apply to financial intermediary financing not under a Green Credit Line, clients may still be required to apply “good international industry practices”. This includes the IFC Performance Standards, which feature a general commitment to maximising resource (including energy) efficiency to the extent technically and financially feasible. However, despite reference to establishing relative efficiency through benchmarking, no concrete requirement is included regarding minimum efficiency improvements. It is also unclear what conditions are needed to trigger the requirement to apply “good international industry practices”.


  • The energy efficiency requirements included in FMO’s Green Methodology represent the components of a strong, and in several cases best practice, approach to energy efficiency. However, as these requirements are only applied to green label projects, this leaves the remaining projects without any guaranteed obligation to integrate comparably robust and detailed energy efficiency considerations (beyond the broad screening required under the IFC Performance Standards). As such, it is recommended that as part of its upcoming investment-level Paris alignment approach, FMO includes requirements for all investments which involve energy efficiency. This would include defining phased approaches for energy efficiency investments to ultimately fulfil the sectoral standards required for a Green Label universally, as well as requiring financial intermediaries to always apply good “international industry practices”, with clear reference to what these are across sectors.
  • Whilst having one of the two overarching principles of the Green Methodology being “no carbon lock-in” is very valuable, FMO should provide further detail regarding how this principle is operationalised in practice. Specifically, the Bank should clearly set out the process and methodology for verifying compatibility with this principle.
  • FMO should adopt an explicit “energy efficiency first” principle as a core part of advice to its corporate customers. This should involve requiring the assessment of the potential for energy savings or demand response among end-use customers, to judge whether these resources are less costly or more valuable than supply-side alternatives. Clear and concrete requirements to consistently consider energy efficiency alternatives in this way can help to incentivise energy consuming customers to prioritise energy efficiency savings where possible and appropriate.
  • Regarding the eligibility of building energy efficiency financing under the Green Methodology; in cases where certification (under LEED or EDGE) is not applied for, FMO applies the 20% minimum energy efficiency gain threshold. However, as this is to be evidenced by the developer themselves through technical studies and comparisons with current practice, FMO should independently audit the evidence provided. Doing so would guarantee reliability and ensure the intended standards are upheld in practice.
Last Update: February 2024

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