Notes to the special purpose consolidated annual accounts

1. Banks

The cash in bank accounts can be freely disposed of.

2. Equity investments

The equity investments in developing countries are for the Fund's account and risk. The movements in fair value of the equity investments are summarized in the following table. Equity investments are measured at FVPL.

3. Current account (liability)

The current account represents the amount payable to FMO

4. Accrued liabilities

Accrued liabilities relate to expenses incurred.

5. Fund capital

6. Interest Income

7. Results from equity investments

8. Operating expenses

The following table presents the operating expenses incurred in 2019 during the set up of the Land Use Facility. Next to direct personnel costs, direct project costs relate mainly to audit and advisory expenses. Furthermore, overhead costs incurred relate to legal fees and costs for support staff.

9. Fair values

The significant accounting policies summary describes how the classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognized. The following table gives a breakdown of the carrying amounts of the financial assets and financial liabilities by category as defined in under IFRS 9 and by balance sheet heading.

Fair value hierarchy

All financial instruments for which fair value is recognized or disclosed are categorized within the fair value hierarchy, based on lowest level input that is significant to the fair value measurement as a whole, as follows:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;
Level 3 – Valuation technique for which the lowest level input that is significant to the fair value measurement is unobservable.

Valuation process

For recurring and non-recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the Fund uses the valuation processes to decide its valuation policies and procedures and analyze changes in fair value measurement from period to period. The fair value methodology and governance over it’s methods includes a number of controls and other procedures to ensure appropriate safeguards are in place to ensure its quality and adequacy. The responsibility of ongoing measurement resides with the relevant departments. Once submitted, fair value estimates are also reviewed and challenged by the IRC. The IRC approves the fair values measured including the valuation techniques and other significant input parameters used.

Valuation technique

When available, the fair value of an instrument is measured by using the quoted price in an active market for that instrument (level 1). A market is regarded as active if transactions of the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, valuation techniques are used that maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

If there is no quoted price in an active market, valuation of unobservable inputs. Valuation techniques include:

• Recent broker / price quotations

• Discounted cash flow model

• Option-pricing models

The techniques incorporate current market and contractual prices, time to expiry, yield curves and volatility of the underlying instrument. Inputs used in pricing models are market observable (level 2) or are not market observable (level 3). A substantial part of fair value (level 3) is based on net asset values.

Equity investments are measured at fair value when a quoted market price in an active market is available or when fair value can be estimated reliably by using a valuation technique. The main part of the fair value measurement related to equity investments (level 3) is based on net asset values of investment funds as reported by the fund manager and are based on advanced valuation methods and practices. When available, these fund managers value the underlying investments based on quoted prices, if not available multiples are applied as input for the valuation. For the valuation process of the equity investments we further refer to the accounting policies within these Annual Accounts as well as section 'Equity Risk', part of the Risk Management chapter. The determination of the timing of transfers is embedded in the quarterly valuation process, and is therefore recorded at the end of each reporting period.

The following table provides an overview of fair values of financial instruments which are recognized at amortized cost in the balance sheet

The following table gives an overview of the financial instruments measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The following table shows the movements of financial instruments measured at fair value based on level 3.

7. Related party information

Dutch Government:

The Dutch Ministry of Foreign Affairs, Directoraat-generaal internationale Samenwerking sets up and administers the investments funds (“State Funds”), including Dutch Fund for Climate and Development, according to the Dutch Government’s development agenda. Directoraat-generaal internationale Samenwerking is the main contributor to the Dutch Fund for Climate and Development, providing funding upon FMO’s request (2019: 40,000)

Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (“FMO”)

The Dutch development bank FMO supports sustainable private sector growth in developing and emerging markets by leveraging its expertise in agribusiness, food & water, energy, financial institutions, Dutch business focus areas to invest in impactful businesses. FMO is a public-private partnership, with 51% of FMO’s shares held by the Dutch State and 49% held by commercial banks, trade unions and other members of the private sector. FMO has a triple A rating from both Fitch and Standard & Poor’s.

FMO has been entrusted by the Dutch Government to execute the mandates of the State Funds: Currently MASSIF, Building Prospects, Access to Energy – I, FOM, FOM-OS, Dutch Fund for Climate and Development Land Use Facility are under FMO’s direct management; the execution of Access to Energy – II and the other facilities of the Dutch Fund for Climate and Development are performed by third parties under FMO’s supervision.

Coöperatief Climate Fund Managers U.A. (“CFM”)

Coöperatief Climate Fund Managers U.A. (“CFM”) is a blended finance fund manager with a long-term vision to structure, cutting edge financing facilities around core areas of climate change mitigation and adaptation, including energy, water, sustainable land use, oceans and sustainable cities. CFM is established as a joint venture between the Dutch development bank FMO and Sanlam InfraWorks – part of the Sanlam Group of South Africa. CFM is the fund manager of Climate Investor One and Climate Investor Two, with the latter including the Water Facility of the Dutch Fund for Climate and Development. Coöperatief Climate Fund Managers U.A. is solely and independently in charge of the investment activities, operations and general day-to-day decision making of the Dutch Fund for Climate and Development Water Facility. FMO exerts significant influence on the policy decisions though its role as the shareholder and supervisory board member of CFM.

8. Subsequent events

There has been no significant subsequent event between the balance sheet date and the date of approval of these accounts which should be reported by the Fund.

The current COVID-19 outbreak will likely impact the global economy and the Fund's financial performance. Given the uncertainties, ongoing developments and measures taken by governments around the globe, the Fund cannot estimate the quantitative impact in an accurate and reliable way at this point in time.