NDF Annual Report 2019 by Nordic Development Fund

Nordic Development Fund

Annual Report 2019

Contents Report of the Board of Directors 2019 Board of Directors Control Committee Management and staff Income Statement Balance Sheet Changes in Equity Cash Flow Statement Notes to the financial statements Independent Auditor’s Report Statement by the Control Committee

4 20 20 20 22 23 24 25 27 42 46

Foreword List of abbreviations used

Dear Partners and Friends of NDF,

ADB

Asian Development Bank

AfDB

African Development Bank

AIIB

Asian Infrastructure Investment Bank

CIF

Climate Investment Fund

CTF

Clean Technology Fund

DFAT

Department of Foreign Affairs and Trade of Australia

EBA

Expert Group of Aid Studies of Sweden

EEP Africa

Energy and Environment Partnership for South East Africa Trust Fund

FEI-OGEF

Facility for Energy Inclusion Off-Grid Energy Access Fund

FONERWA

Rwanda Green Fund

GCF

Green Climate Fund

GEF

Global Environment Facility

IDB

Inter-American Development Bank

KfW

Kreditanstalt für Wiederaufbau

MDB

Multilateral development bank

MUTP

Maputo Urban Transformation Project

NCF

Nordic Climate Facility

NDF

Nordic Development Fund

NEFCO

Nordic Environment Finance Corporation

NIB

Nordic Investment Bank

rAREH

responsAbility Renewable Energy Holding

RDB

Rwanda Development Bank

SDGs

Sustainable Development Goals

SGF

Small Grants Facility

SDR

Special Drawing Rights

SSA

Sub-Saharan Africa

TRALARD

Transforming Landscapes and Resilience for Development

It is a true pleasure and honour to write to you as Managing Director of NDF! It is an institution that has for 30 years delivered on its mandate, and for the last 10 years with a full focus on climate change mitigation and adaptation. Since I joined in August 2019, I have had the privilege to get to know NDF better and its truly committed staff. Dear Colleagues, thanks for your contributions to the day-to-day operations but also your engagement as we continue to carve out and develop NDF’s position in the global climate finance landscape. Dear Reader, as you can see from our Annual Report 2019, we have continued to build our portfolio of high-impact projects to fight climate change. This task of utmost global importance can, however, not be done in isolation. In all our projects, we leverage and benefit from a fruitful cooperation with our strategic partners. Many among these partners can be found in the family of Multilateral Development Banks that counts for 67% of our climate finance portfolio, but also an increasing number of partners outside the MDBs, not least partnering up with NDF in the important task to crowd-in the private sector in climate finance. Dear Partners, thanks for teaming up with NDF! We truly enjoy working together with you. On top of a successful 2019 in terms of operations, we at NDF have also worked closely with the members of the Board of Directors, representing the five Nordic member states of NDF, on the strategic direction of NDF. September 2019 saw the delivery of a Board-commissioned external evaluation of NDF’s activities. The evaluation confirms that NDF has delivered on its mandate and that

United Nations

WACA

West Africa Coastal Areas

The World Bank

NDF has developed a valuable niche in the international climate finance architecture. We at NDF are, of course, very happy to have this positive evaluation as a starting point for the dialogue that is now ongoing with the Board on the future direction of NDF. It is a privilege to start from a positive position and work jointly to refine and enhance the impact of NDF even more as a Nordic financing tool for climate change and development. Thank you, Dear Board members, for your support and the engagement that you have shown in the strategy process. So I conclude the foreword of the Annual Report 2019 by wishing you all happy reading. The full NDF team is looking forward to staying in touch with old partners and friends and meeting many more of you out there in 2020. The climate change challenges ahead of us living on the one planet are immense and require systematic actions. NDF is well-placed to work together with its partners in addressing these challenges.

Karin Isaksson

Report of the Board of Directors 2019 Strategy and policy issues The Nordic Development Fund’s (NDF or the Fund) role in the global climate financing arena and the future financial resources has been high on the agenda during 2019. The Board of Directors decided to carry out an external evaluation of NDF, which was conducted in 2018-2019 by the consultancy firm Particip GmbH and coordinated by the Expert Group of Aid Studies (EBA) of Sweden. The evaluation had two aims: to assess the performance of NDF in accordance with its mandate, and to assess NDF’s potential future role as a joint Nordic financing instrument for development. The evaluation findings confirm that NDF delivers on its mandate in terms of its activities. NDF has developed a valuable niche in the international climate finance architecture by showing an unusual ability to adapt and evolve. This concerns in particular the ability to move quickly and deploy tailored finance with different levels of concessionality. The evaluation concludes that NDF has potential for an increased level of activities. The Fund is well-positioned to address the increased global climate finance need, and at the same time promote the key Nordic priority areas both on policy and on operational levels. The evaluation also concludes that NDF needs to develop its monitoring and evaluation of its projects, and the learning from the effects of its investments. In this context, the Board of Directors decided to initiate a strategy process to further enhance NDF’s impact as a Nordic financing tool for climate change and development. The process has started and is expected to lead to a consideration of strengthening NDF’s financial resources by the owner countries. During the year, NDF’s six operational focal areas of the strategy, adopted by the Board of Directors in 2015, have guided the operations. These focal areas are the catalytic role and leverage, project preparatory funding, support for innovation, support for private sector development and linkages between the public and private sectors, piloting of interventions with a high level of risk, and identification of emerging climate change issues. Financing for eight projects was approved amounting to EUR 40 million. These new commitments included EUR 26 million as grants,

Report of the Board of Directors 2019 EUR 10 million as equity and EUR 4 million as loans. This means that 35% of new commitments were made utilising instruments other than grants. The share of financing commitments targeting private sector operations amount to EUR 20 million, representing 50% of the total annual portfolio commitments. Ten projects reached their completion in 2019. The work on improving risk management processes and procedures continued during the year, providing elements for a new robust and formalised risk management framework. As NDF’s private sector operations and financing modalities continue to expand, such a risk management framework is important.

2019

Approved projects: 8 Financing: EUR 40 million

Equity EUR 10 million

Grants EUR 26 million

Loans EUR 4 million

50%

Projects and results At the end of 2019, the accumulated climate finance portfolio, built up since 2009, consisted of 1171 on-going or completed projects with total NDF financing of EUR 410 million. These operations include both the public sector (83%) and private sector (17%). 67% of the activities are in partnership with multilateral development banks (MDBs) and 33% with other partners. Of these activities, 21% targeted mitigation, 23% adaptation and 56% targeted a combination of both mitigation and adaptation. In 2019, 75 of these projects were on-going at various stages of implementation in 16 countries across Africa, Asia and Latin America. Africa accounts for 52% of the accumulated portfolio. Following the external evaluation’s conclusions on needs to strengthen the monitoring and evaluation (M&E) function or process of the Fund, a new M&E framework will be developed. Meanwhile, NDF’s current Results-Based Management Framework serves as a management tool to assess the achievements. The 2019 results show that the institutional, portfolio and project level results can be described as highly satisfactory overall. This means that all on-going projects are aligned with the current strategy. This consistency is a result of a continued intensified focus on comprehensive strategic compliance. Furthermore, each project is assessed and rated once a year to assess how well they are aligned with their objectives and outcomes. The results from ratings made during 2019 show that approximately 72% of the on-going projects are classified as highly satisfactory or satisfactory regarding progress towards objectives and outcome. A final assessment is also made for all completed projects, to evaluate how well the projects have reached the objectives. In 2019, all ten projects completed during 2019 were rated as highly satisfactory or satisfactory upon completion. One additional project was cancelled due to restructuring of the financing.

Private sector financing: EUR 20 million 1

2019

Accumulated climate finance portfolio Total financing: EUR 410 million

117

Projects

83% 17%

public sector

private sector

33% 67%

other partners

in partnership with MDBs

21%

23%

Mitigation

Adaptation

56%

Combination of both mitigation and adaptation

NCF sub-projects are not included in this number.

Report of the Board of Directors 2019 Operational Highlights in 2019 In 2019, NDF approved financing amounting to EUR 40 million for eight projects. These new commitments included EUR 26 million as grants, EUR 10 million as equity and EUR 4 million as loans. This means that 35% of new commitments were made utilising instruments other than grants.

Report of the Board of Directors 2019 AFRICA NDF investment, EUR million

Country/ project Regional

responsAbility Renewable Energy Holding (rAREH), additional financing

10.0

Energy and Environment Partnership Trust Fund (EEP Africa),

12.0

additional financing

Mozambique

The following projects benefitted from different NDF financing instruments during 2019:

Development of GCF proposal for the Maputo Urban Transformation

0.5

Project (MUTP) Rwanda Kigali Flood Control and Integrated Urban Catchment Management

6.1

Zambia Development of GCF proposal on Transforming Landscapes

0.25

and Resilience for Development (TRALARD) Total Africa

28.85

ASIA Country/project Regional ADB Ventures; design, piloting and implementation phase

0.5

ADB Ventures

10.0

Total Asia

10.5

LATIN AMERICA Country/project Bolivia Preparation and implementation of the New Linear Park between

0.5

La Paz-El and El Alto Total Latin America

0.5

NDF support will help Zambia access GCF funds, helping people in poor, vulnerable communities to better earn their livings despite changing climate and weather patterns. Photo: David Berger, Creative commons

Report of the Board of Directors 2019 rAREH, additional financing (EUR 10 million shareholder equity) NDF became a shareholder in responsAbility Renewable Energy Holding (rAREH) in 2017 with the purpose of supporting rAREH to develop and close renewable energy projects in Sub-Saharan Africa (SSA), while generating attractive, long-term, stable cash flows across a diversified portfolio of renewable energy assets. rAREH has built a promising portfolio that currently consists of 70% hydro and 30% solar projects in different stages of development. According to the latest estimates, rAREH looks at closing projects in their portfolio to an amount of USD 80 million in 2019-2020. The current equity base will however not cover the entire amount. Therefore, rAREH is turning to its current shareholders to bridge finance rAREH over the current situation until rAREH is ready to obtain funding from the capital markets. rAREH’s current shareholder capital position stands at USD 73.7 million, of which NDF holds 11.1% (USD 8.2 million). The needed additional capital for 2019-2020 is projected to be USD 50 million for the projects rAREH plans to close in that period. With this second capital injection, NDF’s equity will be (1) used to finance projects in rAREH’s pipeline that otherwise would not be materialised and (2) therefore enhancing the valuation of rAREH and other prospects for the next financing round. The additional capital injection consists of NDF providing EUR 10.0 million in equity while Kreditanstalt für Wiederaufbau (KfW) provides EUR 15 million, Nordfund provides USD 20 million and responsAbility provides USD 0.5 million, raising the capital base to USD 122 million and NDF’s ownership to 16%.

The water collector tanks redirect rain water to irrigation systems, improving livelihoods of indigenous people in remote Honduran communities by stabilising their crop yields. Photo credit: Aage Jørgensen

Regional Africa, EEP Africa additional financing (EUR 12 million grant) Energy and Environment Partnership Trust Fund for South East Africa Trust Fund (EEP Africa) is a multi-donor trust fund hosted and managed by NDF and providing early stage and catalytic grant financing to innovative clean energy projects, technologies and business models in Southern and East Africa. Additional financing of EUR 12 million from NDF in 2019 provided funds for scaling up the EEP Innovation grant portfolio in 2020 and launching the pilot phase of EEP Catalyst, a new, innovative financing window established by NDF under EEP Africa, providing direct, follow-on loans to successful grant projects. The new window provides for added flexibility and relevance and demonstrates NDF’s added value in its fund management role. The additional NDF financing also provided renewed momentum for additional financing commitments from other donors with Finland announcing additional support of EUR 1.9 million in December 2019 and raising the total funds under management to EUR 42 million. Fundraising efforts will continue in 2020. Progress under the EEP Innovation grant window also advanced in 2019 with 28 new projects contracted and a new call for proposals focusing on the theme of leadership and opportunity for women in clean energy. The call resulted in EUR 6.7 million in new financing commitments toward 19 new projects. Eleven are led by women CEOs and all feature unique dimensions on engaging women in clean energy and green growth.

Report of the Board of Directors 2019 Rwanda Kigali Flood Control and Integrated Urban Catchment Management (EUR 2.1 million grant, EUR 4 million loan) Together with the World Bank (WB) and the Global Environment Facility (GEF), NDF supports the city of Kigali and its inhabitants to improve climate resilience through better management and flood control of urban sub-catchments. The five-year project is implemented by the Rwanda Environment Management Authority and the project will invest in improving the flood control system and management in Kigali. The NDF support will strengthen the early warning system, forecasting services, emergency planning and appropriate public response in disaster situations. NDF support will also generate information about the cost-effectiveness of different flood prevention interventions, best practices for flood prevention and disaster management; and a prioritisation of public and private sector investments that will be adopted under the Kigali City Master Plan. The private sector investments are planned to be financed by on-lending channelled through suitable partners, such as Rwanda’s Green Fund (FONERWA) and the Rwanda Development Bank (RDB). It is expected, that the project will lead to improved knowledge about best practices for flooding and disaster management, decreased social and economic losses, and improved livelihoods for the families living in the area. ADB Ventures (EUR 10 million grant) The Asian Development Bank (ADB) new facility supports earlystage companies with technology-driven business models and solutions for impact in the Asia Pacific. The facility, ADB Ventures (ADBV), will scale technology-enabled solutions to meet regional sustainable development goals (SDG). In the initial stage, ADBV will have a geographical focus on the Greater Mekong Sub-region, a thematic focus on climate change, and include a specific gender lens in its funding activities. ADB Ventures aims at de-risking and accelerating the market access of innovative, growth-oriented climate technology companies in South and South East Asia, with

an explicit objective to promote gender equality. The fund supports growth companies in identifying demand and implementing pilot projects with customers in the region through so-called Impact Labs. The fund co-invests patient venture capital together with other venture capital investors selectively in the most promising companies, and thereafter supports these portfolio companies to scale up their businesses in the region. ADB Ventures will be a climate- and gender-focused facility promoting solutions in sustainable infrastructure and inclusive markets. A minimum of 80% of the funds will be invested in climate solutions including mitigation, adaptation and resilience. A minimum of 75% will be invested in solutions with gender impact, including, for example, access to basic services such as clean energy and clean water, as well as solutions supporting economic inclusion of women. Booster Facility (EUR 5 million grant) The new Booster Facility, which was previously called the Small Grants Facility (SGF), received additional financing at the beginning of the year. The objective of the facility is to provide early, flexible, up-stream financing of up to EUR 0.5 million in the form of grants and loans for climate change and development projects globally. The projects are approved by management and are subject to the same criteria as larger NDF investments. All projects are in line with NDF’s strategy, with particular focus on catalytic role and project preparatory funding. It is envisaged that the facility will be able to leverage at least EUR 10 million in direct co-finance and follow-up finance for more than EUR 500 million. In contrast to SGF, the Booster Facility will also provide loans, which is in line with NDF’s growing emphasis on private sector support.

Maputo’s informal settlements, which are highly vulnerable to high-intensity storms, sea level rise and flooding, will be transformed into climateresilient neighbourhoods with decent housing and economic opportunities through access to GCF funding. Photo credit: Aage Jørgensen

Report of the Board of Directors 2019 During 2019, NDF approved financing for four new interventions under the Booster Facility: Development of Green Climate Fund (GCF) Proposal for the Maputo Urban Transformation Project (MUTP) (EUR 0.5 million Booster grant) The objective of this Booster grant is to share with the World Bank (WB) the costs of preparing a full GCF funding proposal package, including the required technical studies and assessment reports. The main result of the Booster grant will be the full GCF funding proposal package. The proposed GCF funding package will have a budget of USD 80 million and would complement a USD 120 million WB/International Development Agency (IDA) loan to Mozambique. The longer-term outcome will be a fully financed Maputo Urban Transformation Project (MUTP) project with the desired long-term effects (15+ years) to transform informal settlements and green field into climate-resilient urban areas in Maputo. Development of Green Climate Fund (GCF) proposal on Transforming Landscapes and Resilience for Development Project (TRALARD) (EUR 0.25 million Booster grant) The project will share with WB the costs of preparing a full GCF funding proposal package, including the required technical studies and assessment reports. The NDF grant support will help develop a full GCF funding proposal with a budget of USD 75 million that will complement a new WB USD 100 million loan to Zambia and allow for strengthening the climate resilience aspects and increasing the scope and coverage of the TRALARD in northern Zambia. The proposed GCF intervention will focus on addressing the main drivers of environmental degradation, natural resource exploitation and persistent poverty. The plan is to have the GCF TRALARD proposal focus on improving poor vulnerable communities’ livelihoods, food security and resilience to climate change.

Report of the Board of Directors 2019 ADB Ventures; design, piloting and implementation phase (EUR 0.5 million Booster grant) The funding supported the above-mentioned ADB Ventures Investment Fund from an early phase of concept development to fundraising and implementation of the fund. In addition to financing, NDF participated actively in the structuring of the fund, and also helped the ADB Ventures team in identifying partners and potential target companies in the Nordic countries, and initiated contacts. The NDF support was complemented by funding from the Clean Technology Fund (CTF) under the Climate Investment Funds (CIF), the Department of Foreign Affairs and Trade of Australia (DFAT) and ADB. The target size of ADB Ventures is USD 60 million, and NDF as the first investor will also be an anchor investor in the fund itself.

The following activities took place under the Nordic Climate Facility (NCF) during the year: NCF is a financing window set up by NDF to finance early-stage climate projects while stimulating local business and employment opportunities in the developing world. NCF financing is allocated on a competitive basis with thematic calls for proposals arranged annually. In 2019, NCF’s ninth call for proposals, within the financial frame approved in 2016, was launched with the theme “Testing the viability of innovative climate solutions”. The call received 288 applications of which 229 passed the minimum eligibility criteria. Out of these, 44 projects were invited to submit a full proposal of which 38 full proposals were submitted. Of the 89 projects approved by NCF since its inception, 33 are under implementation.

Contribution to UN’s Sustainable Development Goals (SDGs) NDF is increasingly seeking to ensure that its activities contribute towards the achievement of many of the UN’s SDGs. The eight new projects approved by NDF in 2019 particularly target the following SDGs. All new projects are very much in line with NDF’s strategic focus (1. No poverty, 13. Climate action) and Nordic priorities (5. Gender).

Preparation and Implementation of the New Linear Park between La Paz-El and El Alto in Bolivia (EUR 0.5 million Booster grant) Together with the Inter-American Development Bank (IDB), NDF will support the cities of La Paz and El Alto in adaptation and mitigation efforts related to climate change through green planning and disaster risk reduction. The support will finance preparatory studies and consultations to prepare a new major investment program: New Linear Park between La Paz and El Alto “Parque Lineal entre La Paz y El Alto - Thakhi Tantasiña”. The main result of the Booster grant will be a full investment package for the project including the design to build a 17 km linear green park between the two cities, which will increase local community resilience to the impacts of climate change. Another main result will be that the proposed project will have full support from all key stakeholders and participation of all social groups regardless of gender, ethnicity and economic status.

Report of the Board of Directors 2019

Photos: Marjo Koivumäki

Communication and outreach activities In 2019, the communication activities have focused on knowledge management and dissemination of results and lessons learned from on-going and completed projects. Furthermore, focus has been on promoting overall knowledge and awareness of NDF and increasing visibility among current and potential new stakeholders. The highlight of the year was NDF’s Anniversary event, which gathered around 100 invited guests in the heart of Helsinki. To celebrate the Fund’s 30th year of operations and 10th year of the climate mandate, NDF invited key partners from its transformative activities to participate in a panel discussion on How can innovative financing scale up activities to fight climate change? The event resulted in five follow-up articles, which gained a lot of visibility in NDF’s communication channels. A key activity of the year has been to launch a renewal of the NDF’s main outreach channel, the website. Work is still ongoing and the new website is expected to be launched during 2020. The Fund has put more emphasis on disseminating news and other outreach material in electronic format. In addition to the Fund’s website, the electronic communication channels include an electronic newsletter and social media platforms as LinkedIn, Facebook and Twitter. The electronic outreach has enabled the monitoring and statistics of the communication activities and is also a guiding tool for planning and implementation of future communication activities.

NDF has participated in and contributed to a number of conferences, seminars, workshops and visits focusing on a broad range of topics related to NDF, its strategic priorities and activities as well as the global climate finance field. An example is the West African Coastal Area (WACA) Marketplace, which took place in Abidjan, Ivory Coast, in November 2019. It is an initiative under the WACA Platform led by the WB. The objective was to facilitate and simplify the matchmaking process for new projects and investments, and to begin a dialogue between countries, potential financial partners, and the WACA Platform. This first WACA Marketplace had more than 150 participants including ministers of finance and environment from Ivory Coast, government agencies from the six countries, representatives of international finance institutions, regional development banks, bilateral development agencies, private sector organisations, international NGOs and the WB. Partner Institutions NDF has continued its well-functioning partnerships with multilateral development banks (MDBs). The collaboration with the MDBs dates back to the establishment of NDF and the first years of operations. Since the launch of the 2015 strategy, the co-financing has focused on NDF’s six strategic focal areas. In Africa, the main partners have been WB and the African Development Bank (AfDB). In Asia, NDF collaborates mainly with the Asian Development Bank (ADB), but also increasingly with WB. In Latin America, NDF collaborates with the Inter-American Development Bank Group (IDB). In all regions, the portfolios reflect the importance of renewable energy sources and energy efficiency. Other sectors include transport, urban development, water, development of green finance mechanisms as well as health. During recent years, NDF has also increased its cooperation with other partners. These include European Investment Bank (EIB), Asian Infrastructure Investment Bank (AIIB), KfW and the Nordic bilaterals. Interaction with other partners has materialised through private sector engagements through NDF being represented in

Report of the Board of Directors 2019 selected Boards of Directors and in other governing structures of its partners. Such partners are, for example, the African Guarantee Fund, rAREH, Facility for Energy Inclusion Off-Grid Energy Access Fund (FEI-OGEF), and EEP Africa. NDF is formally accredited as an observer to the GCF Board meetings. In 2019, NDF together with the WB supported Zambia and Mozambique to develop proposals to access finance from GCF. There are a number of thematic areas where NDF proactively engage and where NDF has been invited by partners to join thematic networks. Some of these areas are e.g. development impact measurement, gender and also support in fragile and conflict-affected situations. For instance, IFC has invited NDF to join the network for Harmonised Indicators for Private Sector Operators (HIPSO) and are also keen to work with NDF in the area of fragility, conflict and violence and where NDF jointly engage in the Conflict Affected States in Africa Initiative - CASA. On gender, NDF works with all its leading partners and also here there are significant interest from partner organisations, especially due to NDF’s Nordic profile, for NDF engagement in networks and to share policies, experiences, good practices, etc. The NCF and the EEP Africa continued to provide a large number of new partnerships with a number of new stakeholders predominantly in the private sector. Cooperation with Nordic institutions NDF has been in a dialogue with both the Nordic Council and the Nordic Council of Ministers in issues relating to climate change and development but also regarding the overall structure of the Nordic development and climate finance architecture, and NDF’s role in the future. At the end of the year, a joint working group on gender was established between Nordic Investment Bank (NIB), Nordic Environment Finance Corporation (NEFCO) and NDF, to share information and to collaborate jointly towards added focus on gender issues as relevant for each of the organisations. Other joint working groups have already been established earlier on specific fields of activities.

Report of the Board of Directors 2019 For example, the working group on communication activities has resulted in implementation of measures for increased collaboration. In the field of anti-corruption and integrity issues, the cooperation with NIB and NEFCO has continued throughout 2019.

Institutional issues Policies and Regulations In 2019, NDF followed up on Internal Audit’s findings and recommendations related to its blended finance activities and liquidity management. Some of the recommendations, such as those that related to an investment strategy for equity investments, will be implemented pending the outcome of the ongoing strategy revision. Board of Directors The Chair of the Board of Directors for the period from 1 January to 30 April 2019 was Hans Olav Ibrekk (Norway), with Lars Roth (Sweden) as Deputy Chair. As of 1 May 2019, Lars Roth took over the Chair with Dorthea Damkjær (Denmark) as Deputy Chair for the period from 1 May to 8 September. As of 9 September, Morten Houmann Blomqvist was appointed member (Denmark), succeeding Dorthea Damkjær as Deputy Chair. In addition, the following changes took place in the Board membership in 2019. As of 1 May, Ann-Sofie Bjelland was appointed member (Norway), succeeding Hans Olav Ibrekk. As of 23 October, Ásta Fjeldsted was appointed member (Iceland), succeeding Egill Heiđar Gislason. As of 1 February, Johanna Pietikäinen was appointed alternate (Finland), succeeding Heli Mikkola. As of 20 March, Sofia Larsson was appointed as alternate (Sweden), succeeding Marita Olson. Sofia Larsson left her position as alternate on 6 September and a successor is pending. As of 14 May, Ólafur Sigurðsson was appointed alternate (Iceland). A list of NDF Board members and their alternates can be found on page 20.

Control Committee The Control Committee ensures that NDF’s operations are conducted in accordance with its Statutes. The Committee is responsible for the financial audit of the Fund. The audit of NDF is carried out by authorised public accountants Ernst & Young, appointed by the Control Committee. The 2018 annual accounts and the annual auditor’s report was approved by the Control Committee in March 2019. (The Nordic Council of Ministers approved the 2018 annual accounts in June 2019). The Control Committee met twice in 2019. A list of the members of the Committee can be found on page 20. Administration Karin Isaksson, a Swedish national, took up the position as Managing Director as of 15 August 2019, succeeding Pasi Hellman, who was the Managing Director until 30 October 2018. Deputy Managing Director Leena Klossner was the Acting Managing Director for the period 1 November 2018 - 14 August 2019. As of 31 December 2019, NDF had 17 full-time positions, and three part-time employees. Out of the full-time employees, five were employed on contracts financed by the NCF and the EEP Africa. The staff consists of eight (40%) male and 12 female (60%) members, representing four different nationalities. A list of the employees can be found on page 20. The growing portfolio and related increasingly complex activities have required active involvement from the staff and accentuated the importance to carefully monitor the overall workload and efficient resource utilisation to ensure the well-being of staff. NDF acquires services from NIB regarding e.g. office premises, staff administration, ICT services and accounting. Formally, this administrative collaboration is based on service agreements between NDF and NIB, subject to review from time to time. NIB headquarters has been certified as a Green Office by WWF Finland since 2009. NDF follows NIB’s principles on green office. 2

In 2019, NDF’s carbon footprint amounted to 149 tons of CO2. The biggest share of the carbon footprint comes from air travel, which in 2019 amounted to 124 tons of CO2 equivalents. The direct reduction of greenhouse gases for the NDF mitigation projects approved during 2019 has been estimated at 51,914 tons of CO2 equivalents.2

Financial review Disbursements and results During 2019, total disbursements to climate projects amounted to EUR 30.8 million (2018: EUR 28.5 million), of which EUR 1.9 million was made as equity contribution (2018: EUR 9 million), EUR 27.4 million as grant financing (2018: EUR 19.5 million) and EUR 1.5 million as financing to climate loans (2018: EUR 0). The total sum also includes disbursements to sub-projects under NCF. At the end of the year, accumulated disbursements to climate change projects since 2009 amounted to EUR 281.8 million. The net result for the year before adjustments for currency exchange fluctuations and after disbursements of grant totalled EUR -17.9 million in comparison with EUR -15.9 million the previous year. The net result is EUR -15.2 million for 2019, compared to EUR -11.5 million in 2018. Instruments NDF operates with several types of financing instruments. Depending on the project type, NDF contributes with grants, loans and equity and can blend these instruments. Capital and accounting currency NDF changed its capital and accounting currency from Special Drawing Right (SDR) to EUR on 1 January 2001. NDF’s fund capital is in both SDR and EUR. As NDF has outstanding credits in

The estimated reductions for 2019, are not comparable to the estimated reductions for 2018. The estimated reductions for 2018 included a figure for the EEP portfolio

that should not have been reported that year.

SDR, fluctuations in the SDR/EUR exchange rate lead to variations in financial results, positive or negative, from one year to another. Since 2012, hedging measures have therefore been taken to decrease the effect from the exchange rate fluctuations. Liquidity and capital The liquid assets of NDF are managed by a commercial bank on behalf of NDF. Based on NDF’s Liquidity Policy, the assets are placed in green bonds, green equity funds, moderate yield funds and deposits, altogether yielding an average interest rate of approximately 0.8% (2018: 0.6%). The green bonds have an average maturity of six years and NDF’s deposits are placed on 1 to 12-month intervals. The liquidity as per 31 December 2019 was EUR 109.9 million (2018: EUR 105.8 million) of which EUR 41.5 million was placed in green instruments (2018: EUR 24.1 million). The last capital payment from the member countries was made in 2015 based on a capital increase decision taken in 2000. Current operations are financed from the existing liquidity and the reflows coming from the outstanding portfolio. During 2019, NDF received repayments under disbursed portfolio amounting to EUR 26.5 million. Financial results and allocation NDF’s total assets as of 31 December 2019 amounted to EUR 784,282,510 (2018: EUR 798,551,729). This amount includes outstanding credits to public sector projects, climate loans, other loans with equity features and equity investments to the amount of EUR 666,201,449 (2018: EUR 685,807,823) and placements with credit institutions to the amount of EUR 109,879,546 (2018: EUR 105,755,930). The total net loan losses, write-down on loans and reversals during 2019 totalled EUR 0 (2018: EUR 265,194). As of 31 December 2019, NDF’s capital consisted of SDR 515 million and EUR 330 million in paid-in capital and EUR -238,496,465 (2018: EUR -223,323,286) in accumulated net income after adjustments for currency exchange fluctuations.

Report of the Board of Directors 2019 The Fund’s income during 2019, amounting to EUR 7,942,536 (2018: EUR 5,609,474), consisted of income from credits to the public sector to the amount of EUR 4,928,728 (2018: EUR 5,041,902), interest on placements with credit institutions of EUR 717,672 (2018: EUR 561,339), EUR 677,394 (2018: EUR 170,282) as remuneration on equity loans and other loans and EUR 1,618,742 (2018: EUR -164,048) from interest income from other financial placements, cash and balances with banks and realised and unrealised gains/losses from other placements. Zimbabwe continues to be in payment delay to NDF. All of its accrued, outstanding obligations towards NDF have therefore been placed in non-accrual status, and in line with the World Bank’s recommendations, an impairment loss of 50% has been made. Administrative expenses were EUR 2,807,668 (2018: EUR 3,083,292). The largest single item of expenditure consists of salaries and ancillary expenses of EUR 1,751,373 (2018: EUR 1,724,208). The net income for the year, which after adjustments for currency exchange fluctuations and hedging measures of EUR 2,726,039 (2018: EUR 4,379,754), amounts to EUR -15,173,179 (2018: EUR -11,476,232), is carried forward to the new account. The income statement, balance sheet, changes in equity, cash flow and notes can be found on pages 22-25.

Helsinki, 3 February 2020

ANNE SOFIE BJELLAND

LARS ROTH

MAX VON BONSDORFF

Chairman ÁSTA SIGRĺÐUR FJELDSTED

KARIN ISAKSSON

MORTEN BLOMQVIST

Managing Director

Deputy Chairman

Photo: Marjo Koivumäki

Report of the Board of Directors 2019

NDF’s Board members and administrative staff.

Report of the Board of Directors 2019 CONTROL COMMITTEE *

MANAGEMENT AND STAFF *

DENMARK

CHAIRMAN Jan-Erik Enestam, Managing Director

Karin Isaksson, Managing Director

Morten Blomqvist, Special Adviser,

DENMARK Sjúrður Skaale, Member of Parliament

Leena Klossner, Deputy Managing Director

Ministry of Foreign Affairs

FINLAND Wille Rydman, Member of Parliament

Christina Stenvall-Kekkonen, Vice President,

Deputy Chair of the Board

ICELAND Viljhálmur Árnason, Member of Parliament

Chief Counsel

Alternate: Henrik Silkjaer Nielsen, Chief Consultant,

NORWAY Michael Tetzschner, Member of Parliament

Team Leader, Ministry of Foreign Affairs

SWEDEN Johan Andersson, Member of Parliament

FINLAND

AUDITORS APPOINTED BY THE CONTROL

Martina Jägerhorn, Program Manager

Max von Bonsdorff, Director, Ministry for Foreign Affairs

COMMITTEE

Aage Jørgensen, Program Manager

BOARD OF DIRECTORS *

Jesper Andersen, Procurement Specialist and Program Manager

Alternate: Johanna Pietikäinen, Programme Officer,

Isa Kujansuu, Legal Trainee Ernst & Young Finland Oy, Responsible partner:

Per Lagerstedt, Program Manager

Terhi Mäkinen, Authorised Public Accountant

Isabel Leroux, Program Manager

ICELAND

Ernst & Young Sweden AB, Responsible partner:

Aleksi Lumijärvi, Program Manager

Ásta Sigríður Fjeldsted, Managing Director,

Mona Alfredsson, Authorised Public Accountant

Ann-Christin Lundin, Assistant

Ministry for Foreign Affairs

Iceland Chamber of Commerce

Emeli Möller, Manager of Nordic Climate Facility

Alternate: Ólafur Sigurðsson, Director,

Secretary to the Control Committee

Mats Slotte, Manager, Financial Administration

Ministry of Foreign Affairs

Terhi Mäkinen, Ernst & Young Finland

Jessica Suominen, Financial Controller Maria Talari, Communications and Administration Officer

NORWAY

Elena Tamminen, Trainee

Anne Sofie Bjelland, Senior Adviser,

Visa Tuominen, Project Officer, Nordic Climate Facility

Ministry of Foreign Affairs

Jussi Viding, Project Officer, Energy and Environment

Alternate: pending nomination

Partnership Charles Wetherill, Manager of Energy and Environment

SWEDEN

Partnership

Lars Roth, Deputy Director, Ministry for Foreign Affairs,

Johanna Zilliacus, Project Officer, Nordic Climate Facility

Chair of the Board Alternate: pending nomination *As of 31 December 2019 Observer: Johan Ljungberg, Chief Environmental Analyst, Nordic Investment Bank

ADB Ventures will facilitate access for innovative and promising clean-energy technology solutions in key developing markets in South and South East Asia. The focus will be on promoting gender equality and economic inclusion in growthoriented companies. Photo credit: Simon Kolton

Income Statement (Amounts in 1,000 EUR) Income Service charges from credits

Balance Sheet (Amounts in 1,000 EUR) 1 January to

1 January to

Note

31 December 2019

31 December 2018

(2)

4,878

5,030

677

170

Income from loans with equity features

Interest income/expenses from placements with credit institutions

219

-22

Interest income from other financial placements

129

Real. and unreal. gains/losses other financial placements

1,406

-265

Total income

7,444

5,027

Fee and commission income

Interest income from cash and balances with banks

Assets

(8)

15,643

6,443

(8)

29,938

52,475

Other financial placements

(8)

Other assets Derivative instruments Credits to sovereign states

Fee and commission expenses Commission expenses, derivative instruments General administrative expenses

(4)

Interest expenses/income

699

(7)

328

982

1,556

1,516

(9)

636,094

659,435 4,373

Other loans

(10)

4,099

-1,380

Climate loans

(3), (11)

1,446

Loans with equity features and equity investments

(3), (12)

24,561

22,000

Intangible assests

(5)

825

Tangible assets

(5)

784,283

798,552

1,318

470

1,021,405

-223,323

-211,847

-15,173

-11,476

Total equity

782,909

798,082

Total liabilities and equity

784,283

798,552

2,808

3,083

-498

-583 15

Changes in provision for credit losses, write-down of loans and reversals

(6)

265

25,347

20,937

-17,903

-15,910

Total assets Liabilities and Equity Liabilities

Net result for the year before foreign exchange differences and unreal./real. gains/losses derivatives

Other liabilities Forward contracts

3,421

5,165

Equity

-654

-1,111

Fund capital SDR 515,000,000

-42

325

2,726

4,380

Unrealised gains/losses on fair value of forward contracts

Accumulated net result

Unrealised/realised gains/losses on forward contracts

Net result for the year

-15,173

-11,476

Foreign exchange differences

Foreign exchange differences, net

Net result for the year

3,778

19,459

153

Realised gains/losses on derivative instruments

5,481

27,437

(5)

Unrealised gains/losses on fair value of derivative instruments

46,837 105,756

-4,660

Depreciation/amortisation on tangible and intangible assets Total expenses

64,298 109,880

Forward contracts Accrued income

(3)

31 December 2018

Other long-term financial placements

Expenses Refund of grant financing

31 December 2019

Cash and cash equivalents

Grant financing for climate projects

Note

(7)

Fund capital EUR 330,000,000 Paid-in fund capital

(13)

Changes in equity (Amounts in EUR 1,000)

Equity as of 1 January 2018

Cash Flow Statement (Amounts in EUR 1,000)

Paid-in fund capital

Accumulated net result

Result for the year

Total

1,021,405

-211,847

809,558

-11,476

Result for the year Transfers between equity items Equity as of 31 December 2018

1,021,405

-11,476

11,476

-223,323

798,082

-15,173

15,173

-238,496

782,909

Result for the year Transfers between equity items Equity as of 31 December 2019

1,021,405

Cash flow from operating activities: Net result for the year

31 December 2019

31 December 2018

-15,173

-11,476

Adjustments Depreciation/amortisation on tangible and intangible assets Foreign exchange differences Fair value of derivative instruments Fair value of other financial placements Change in accrued interest and fees (assets) Change in provision for credit losses and write-down of loans

153

-3,421

-5,165

650

1,056

-1,389

229

-39

-228

265

Lending 0

-223

Repayments of credits

26,471

24,578

Disbursed equity loans and equity investments

-2,561

-9,000

Credits disbursed

Repayments of equity loans and equity investments Repayments of other loans Climate loans disbursed Change in other liabilities Other adjustments to the yearâ&#x20AC;&#x2122;s result Cash flow from operating activities

131

273

-1,446

-133

-27

3,389

427

Cash flow from investing activities: Change in placements with a maturity longer than 3 months Change in other financial placements Change in derivative instruments Change in other assets Cash flow from investing activities Foreign exchange differences Change in cash and cash equivalents

22,537

19,158

-16,073

-19,331

758

-1,973

-2,104

-827

5,119

-2,972

692

1,723

9,200

-823

Opening balance for cash and cash equivalents

6,443

7,266

Closing balance for cash and cash equivalents

15,643

6,443

The cash flow statement has been prepared using the indirect method and cash flow items cannot be directly concluded from the balance sheet and income statement.

Notes to the financial statements Note 1: Accounting policies Reporting entity Governance Structure The most important formal basis for Nordic cooperation is the Helsinki Agreement of 1962. This agreement sets out the aims of Nordic cooperation and contains provisions for the Nordic Council and, as subsequently amended, for the Nordic Council of Ministers. The Nordic Council is a forum for consultation and discussion on issues of common interests at a parliamentary level. The Nordic Council of Ministers is empowered to make decisions on matters of cooperation that are binding to the governments of the Nordic countries. On 19 May 1988, the Nordic Council of Ministers decided to establish Nordic Development Fund (“NDF” or “Fund”) for financing projects of Nordic interest in developing countries on concessional terms. The establishing agreement of NDF was signed by the five Nordic countries namely Denmark, Finland, Iceland, Norway and Sweden on 3 November 1988 and entered into force on 30 January 1989. The Fund’s operations commenced on 1 February 1989. A new Agreement on the Nordic Development Fund was signed on 9 November 1998, replacing the agreement of 1988. Purpose The statutory purpose of NDF is to promote economic and social development in developing countries through participation in financing, on concessional terms, of projects of interest to the Nordic countries. As the Nordic countries’ joint international development financing organisation, NDF focuses, as reflected in the Strategy approved by the Board of Directors in 2015 on climate change and development-related interventions in low-income and lower-middle income countries. NDF provides flexible financing in the form of grants, loans and equity.

Creating a large natural green corridor between Bolivian cities La Paz and El Alto will not only make informal settlements more resilient and adaptive, but also increase social integration to counter threats like flooding and landslides. Photo credit: Jesper Andersen

Legal Status NDF is governed by the provisions of the 1998 Agreement and the pertaining statutes (the “Statutes”) as amended from time to time. In addition, there is a Host Country Agreement between NDF and the Government of Finland (“Host Country Agreement”), which was signed on 15 October 2013 and entered into force on 11 May 2014. NDF has the legal status of an international legal person, with full legal capacity and is vested with some privileges and immunities typical for an intergovernmental financial organisation, such as exemption from credit policy measures and payment restrictions, protection from search and seizure of its property and assets, inviolability of its premises, and broad tax exemptions. The Statutes provide that the headquarters of the Fund are located at the premises of the Nordic Investment Bank (NIB). The address of the headquarters is Fabianinkatu 34, Helsinki, Finland, 1.2 Basis of Accounting The financial statements have been prepared in accordance with methods of valuation and recognition of income and expenses as described below. With the exceptions noted below, they are based on historical cost. The accounts of the Fund are kept in euro. 1.3 Accounting standards adopted in 2019 As of 1 January 2019, NDF decided to start to treat leases for accounting purposes in line with the International Reporting Standards (IFRS) 16, which substantially changed the accounting treatment for leases, as the majority of leases became on-balance sheet liabilities, with corresponding right of use assets on the balance sheet. However, the Fund does not have significant leasing commitments and therefore the standard did not have a significant impact. The change has been applied using a modified retrospective approach, where comparatives have not been restated.

Notes to the financial statements 1.4 Functional and presentation currency The Fund’s functional and presentation currency is the euro and the financial statements are presented in EUR 1,000, unless otherwise indicated. All figures in the accounts have been rounded and consequently the sum of individual figures may deviate from the presented sum figure. Furthermore, all percentages are subject to possible rounding differences. 1.5 Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are recognised in the accounts at the exchange rate prevailing on the closing date. Non-monetary assets and liabilities are recognised in the accounts at the euro rate prevailing on the transaction date. Income and expenses recognised in currencies other than the euro are converted on a daily basis to the euro, in accordance with the euro rate prevailing on that day. Realised and unrealised exchange rate gains or losses are recognised in the income statement as Foreign exchange differences. The Fund uses the official exchange rates published for the euro by a leading market data provider with some exceptions, as disclosed in Note 15. 1.6 Significant accounting judgements and estimates The preparation of financial statements requires management to make assessment and estimates that affect the result, financial position and additional disclosures. The main impact is on the assessment of impairment of loans and the fair value of the investments. They are based on the information available to the management. Actual results may differ materially from the assessments made. 1.7 Recognition and derecognition of financial instruments Financial instruments are recognised in the balance sheet on a settlement date basis. A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire. A financial liability is derecognised from the balance sheet when the obligation specified in the contract is discharged, cancelled or expires.

1.8 Basis for classification and measurement The Fund classifies its financial assets into two categories: those measured at amortised cost, and those measured at fair value. This classification depends on both the contractual characteristics of the assets and the business model adopted for their management. An investment is classified at “amortised cost” only if both of the following criteria are met: the objective of the Fund’s business model is to hold the assets in order to collect the contractual cash flows, and the contractual terms of the financial assets must give rise on specified dates to cash flows that are only payments of principal and interest on the principal amount outstanding. If either of the two criteria above is not met, the asset cannot be classified in the amortised cost category and must be classified at fair value through profit and loss (FVPTL). Determination of fair value The fair value of financial instruments, including derivative instruments that are traded in a liquid market, is the bid or offered closing price on the balance sheet date. The Fund measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements: Level 1: Quoted market prices (unadjusted) in an active market for identical instruments. Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Valuation techniques using significant unobservable inputs. Mayors from 16 Latin American and Caribbean cities participated in May 2019 in a 3-day urban workshop to learn from Nordic experience. The event was organised by the Inter-American Development Bank (IDB) and Nordic Development Fund (NDF) in collaboration with the Confederation of Danish Industry (DI), Business Sweden, and the cities of Copenhagen and Malmö. Photo: Michael Stub

Notes to the financial statements

1.9 Cash and cash equivalents Cash and Cash Equivalents comprise monetary assets and placements with original maturities of three months or less, calculated from the date the acquisition and placements were made. Cash and Cash Equivalents in the cash flow statement refers to the net amount of monetary assets, placements and liabilities with original maturities of three months or less, calculated from the time the transaction was entered into.

1.12 Credits to sovereign states The recipient countries for NDF credits are primarily low-income developing countries. The credit period for credits to sovereign states, which NDF granted during the years 1989 - 2005, is 40 years, including a 10 year grace period. The credits are initially recognised at cost at settlement date and held at amortised cost. There is considerable concessionality in the credits from NDF as they are interest-free and have very long maturities.

1.10 Derivative instruments As NDF will for many years to come have outstanding credits denominated in SDR, changes in the SDR-EUR rate may lead to the income statement showing substantial foreign exchange differences since these currency positions are not 100% hedged against changes in foreign exchange rates. However, in accordance with the Hedging Policy, measures have been taken to reduce the effects from the foreign exchange differences by hedging 50% of the credits denominated in SDR. The derivative instruments are valued at fair value at the end of the year and the change in fair value is recognised in the income statement. NDF utilises both forward and deposition contracts for liquidity management purposes. NDF has forward and deposition contracts with a commercial bank.

1.13 Other loans Other loans outstanding consist of loans, which NDF granted during the years 1989 - 2005, with financial liability features to the private sector. The loans are initially recognised at cost at settlement day. In the balance sheet, other loans are recorded net of provisions for actual and possible loan losses. A provision for possible loan losses, is established based on the assessment of the nature and maturity structure of the loan portfolio.

1.11 Placements with credit institutions NDF invests monetary assets with a commercial bank at current market interest rates. The placements are initially recognised at cost (normally nominal value) at settlement date. Placements are also recorded at cost in the annual report. Accrued interest on placements is recorded within “Accrued Income” in the balance sheet. Placements with credit institutions for longer than three months are shown as investments in the Cash Flow Statement.

1.14 Climate loans to sovereign states The first climate loan was approved by the Board of Directors in 2016. Since then, the Board of Directors have approved five climate loan projects, to a value of EUR 26 000 thousand. Climate loans follows the same principle and structure as Credits to sovereign states, thus providing concessional loans to sovereign states for a loan period of 25 - 38 years. The climate loans are initially recognised at cost at settlement date and held at amortised cost. 1.15 Loans with equity features and equity investments Loans with equity features and equity investments are accounted for in the balance sheet under Loans with equity features and equity investments and recognised at cost after write-down. The Fund regularly assesses its equity investment’s valuation. If the book value exceeds the valuation made, a corresponding write-down is made. Write-downs are presented separately in the income statement.

1.16 Provision for loan losses NDF’s lending conditions for Credits to sovereign states, Other loans and Climate loans to sovereign states allow a long-term view to be taken of the repayment capacity of recipient countries. In the event of debt consolidation, it is assumed that credits from NDF will be treated in the same manner as loans from other multilateral financing institutions (preferred creditor status). For payments, which are more than 180 days overdue, the Fund places all credits to the borrower in question in non-accrual status, whereupon the Fund stops recording accrued service charges and fee and commission revenue as income on the income statement. All accrued but unpaid income in respect of the borrower in question that had been recorded as income is then deducted from the income statement. Credits outstanding are recognised in the balance sheet at their recoverable amount. Loans to sovereign states are recorded net of provisions for possible loan losses and actual loan losses. Provision for possible loan losses is established based on the assessment of the nature and maturity structure of the credit portfolio. 1.17 Financing of grant projects Disbursements to climate projects that are in the form of grants, are recorded as a cost under “Grant financing for climate projects” in the income statement. Upon completion of a project or cancellation of a grant, any refund is accounted for as a reduction of the total costs for the year under “Refund of grant financing.”

1.19 Tangible assets Tangible assets are recognised at historical cost, less any accumulated depreciation based on their assessed useful life. The depreciation period for tangible assets is determined by assessing the individual item, usually three to five years. The depreciations are calculated on a straight-line basis. 1.20 Write-downs and impairment of intangible and tangible assets The Fund’s assets are reviewed annually for impairment. If there is any objective evidence of impairment, the impairment loss is determined based on the recoverable amount of the assets. 1.21 Paid in capital NDF’s capital is provided from the development cooperation budgets of the five Nordic countries. The original subscribed and paid-in authorised capital by the Nordic countries amounts to EUR 1 021 000 thousand (see note 13). At the end of the year, the net result of the year is transferred to the accumulated net result. Future operations will build on the existing liquidity, the reflows coming both from the 188 outstanding credits and loans, which NDF granted during the years 1989-2005 as well as from the ongoing climate loans (see notes 9 - 11), and any potential future paid-in capital. The last repayment for credits and climate loans is due in 2045.

1.18 Intangible assets Intangible assets mainly consist of investments in software, software licenses and in 2019 right to use assets arising from leasing arrangements. Acquisitions that generate economic benefits exceeding costs beyond one year are recognised as intangible assets. The investments are carried at historical cost and are amortised over the assessed useful life of the assets, which is estimated to be between three and five years. The amortisations are made on a straight-line basis.

Notes to the financial statements 1.22 Income from service and commitment charges, loans with equity features and equity investments The Fund’s long-term lending to sovereign states is interest-free, but a service charge of 0.75%-1.25% per annum is collected on outstanding amounts. A commitment charge of 0.5% per annum is collected on any undisbursed balance commencing 12-18 months after the loan agreement has been signed. Income from other loans is presented within Service charges from credits in the income statement. Income from loans with equity features is normally related to the return received by the shareholders of the company. Income from service charges on lending and income from loans with equity features and equity investments are presented as separate items in the income statement. Commitment charges are presented within Fee and commission income.

Notes to the financial statements Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the lease term. The right-of-use assets are presented as part of intangible assets in Note 5. Lease liabilities At the commencement date of the lease, the Fund recognises lease liabilities measured at the present value of lease payments to be made over the lease term. 1.25 Employee benefits

1.23 General administrative expenses and host country reimbursement NDF purchases administrative services from NIB. Costs of these services are shown under note 4. On the basis of the Host Country Agreement, NDF receives a host country reimbursement from the Finnish government equal to the tax levied on the salaries of the Fund’s employees. This is presented in note 4. 1.24 Leasing agreements Following the adoption of IFRS16 effective from 1 January 2019, the Fund applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Fund recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. The liability and asset are equal at recognition date. Short-term leases and leases of low-value assets are recognized on a straight-line basis over the lease term. Right-of-use assets The Fund recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use).

Employee pensions and insurance The Fund is responsible for arranging pension insurance for its employees in accordance with the Host Country Agreement. As part of the Fund’s pension arrangements, the Fund has decided to apply the Finnish public sector pension system. Contributions to this pension system, which are paid into the Finnish State Pension Fund, are calculated as a percentage of salaries. Finland’s largest pension provider, Keva, confirms the basis for the pension contribution determined by the Finnish Ministry of Finance (see Note 4). NDF also provides its permanent employees with a supplementary pension insurance scheme, arranged by a private pension insurance company. This is a group pension insurance based on a defined contribution plan. The Fund’s pension liability is completely covered. Obligations for contributions to defined contribution plans are expensed as the related service is provided and recognised as personnel expenses in profit or loss. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available.

Note 3: Financing for climate projects

Short-term employee benefits Short-term employee benefits are expensed as the related service is provided.

Total disbursements for climate projects amounted in 2019 to EUR 30 768 thousand (2018: EUR 28 459 thousand) of which EUR 27 438 thousand was made as grants (2018: EUR 19 459 thousand), EUR 1 884 thousand* as equity

1.26 Cash Flow Statements The cash flow statement has been prepared using the indirect method whereby the net result is adjusted for effects of non-cash transactions such as depreciation and loan losses. The cash flows are classified by operating, investing and financing activities. Cash flow items cannot be directly determined from the balance sheet.

contribution (2018: EUR 9 000 thousand) and EUR 1 446 thousand as loan financing (2018: EUR 0 thousand). * The total equity contribution comprise of EUR 2 561 thousand which in the settlement was reduced with dividends of EUR 677 thousand. The geographic distribution is as follows:

Note 2: Service charge from credits and climate loans

Grant financing: (EUR 1,000)

31 Dec.2019

31 Dec.2018

18,623

8,961

The table shows the service charge recorded during the year from the following

Africa

outstanding loans.

Asia

2,692

1,191

Multiple regions

4,346

8,141

(EUR 1,000) EUR and SDR credits EUR other loans EUR climate loans

31 Dec.2019

31 Dec.2018

4,843

4,996

4,878

5,030

1,777

1,165

27,438

19,459

31 Dec.2019

31 Dec.2018

1,884

9,000

Asia

Multiple regions

Latin America

1,884

9,000

31 Dec.2019

31 Dec.2018

1,446

Multiple regions

Latin America

1,446

Latin America

Equity financing: (EUR 1,000) Africa

Loan financing: (EUR 1,000) Africa Asia

In addition, financing to projects for the total amount of EUR 141 064 thousand (2018: EUR 133 073 thousand) has been approved but not yet disbursed.

Notes to the financial statements

Note 4: General administrative expenses including compensation for the Board of Directors, the Control Committee and the Managing Director

Additional Benefits for Expatriate Personnel

Compensation for Board of Directors, Control Committee and

Professional staff (including the Managing Director) who move to Finland for the

Managing Director

sole purpose of taking up employment at the Fund are entitled to certain expatri-

Compensation for the Board of Directors (BoD) and the Control Committee (CC) is

General administrative expenses (EUR 1,000)

2019

2018

ate benefits, such as an expatriate allowance and a spouse/ family allowance. In

set by the Nordic Council of Ministers. The compensation consists of fixed annual

Personnel costs other than pension premiums

1,752

1,801

addition, NDF assists the expatriate in finding accommodation, usually by renting

remuneration and an attendee allowance. The members of the BoD and the CC are

Pension premiums in accordance with the Finnish public sector pension system

527

459

a house or a flat in its own name. The staff member reimburses the NDF for a

also entitled to reimbursement of travel and accommodation expenses and a daily

Other pension premiums

112

117

part of the rent, which is equal to at least the taxable value of the accommodation

allowance in accordance with the established travel policy.

Office premises costs

169

benefit established annually by the Finnish National Board of Taxes.

707

739

Other general administrative expenses Cost coverage, NIB Total

400

451

3,517

3,735

Host country reimbursement according to agreement with the Finnish Government Net

Host Country Reimbursement

annual salary and usual salary-based benefits.The current Managing Director,

According to the Host Country Agreement between the government of the

Karin Isaksson who is appointed for a term of four years, took up her position on

Republic of Finland and the Fund the amount of tax withheld in advance on the

15 August 2019.

-710

-652

salaries of NDF’s staff and the final tax on salaries collected shall be repaid to

2,808

3,083

the Fund. The host country reimbursement, which the Fund received in 2019,

Compensation for the Chairman of the Board of Directors, the Board, the Control

amounted to EUR 709,549 (2018: EUR 652,083). The payment reduces the Fund’s

Committee and the Managing Director appears in the table below:

Pension Obligations

Staff Loans

NDF is responsible for arranging pension security for its employees. The current

Staff loans can be granted to permanently employed staff members who have been

pension arrangement consists of pensions based on the Finnish public sector

employed by the Fund for a period of at least one year. The staff loans are granted

pension system (JuEL Pension) as the basis for the pension benefits. The JuEL

by a commercial bank, subject to a recommendation from NDF. At present, the

(amounts in EUR)

Pension is calculated based on the employee’s annual taxable income and the

maximun loan amount is EUR 200,000. The employee pays interest on the loan

Chairman of the Board of Directors

applicable age- linked pension accrual rate. The employer’s pension contribution

in accordance with the official base rate established by the Ministry of Finance

Other members of the Board

in 2019 was 17.34% of the pensionable income. The employee’s pension contribu-

in Finland or 0.25%, whichever is the higher. The same interest rates, terms and

tion was either 6.75% or 8.25%, depending on the employee’s age. NDF pays this

conditions are applicable to all the employees of the Fund, including the Managing

contribution for its permanent staff, and it is taxed as a benefit for the employee.

Director. As of 31 December 2019, there were no (-) outstanding staff loans to the

This pension is accounted for as a defined contribution plan.

Managing Director.

In addition to the JuEL Pension, the Fund has taken out a supplementary

The BoD decides on the appointment and remuneration of the Managing Director. Compensation for the Managing Director is paid in the form of a fixed

administrative expenses as shown above.

2019 Compensation/ taxable income

2018 Compensation/ taxable income

Managing Director

152

277

Control Committee

During 2019 (15.8 - 31.12.2019), NDF paid a total of EUR 53,441 (1.1-31.10.2018: EUR 79,262) in pension premiums for the Managing Director.

group pension insurance policy for its entire permanently employed staff, including the Managing Director. The insurance premium of 6.5% is calculated based on the employee’s taxable income and paid until the age of 63. The supplementary pension is also accounted for as a defined contribution plan. The employer’s pension contribution regarding the Managing Director amounted to EUR 53,441 of which EUR 14,539 comprised supplementary pension premiums. The Board of Directors and Control Committee members are not eligible for NDF pension arrangements.

Notes to the financial statements

Note 5: Intangible and tangible assets

Intangible assets

Note 8: Cash and cash equivalents and other financial placements

The total net impairment of loans and reversals, realised impairments on loans

(EUR 1,000)

during 2019 totalled EUR 0 (2018: EUR 265 thousand). During 2019, realised

Cash and cash equivalents

2018

2019

(EUR 1,000)

Note 6: Impairment of loans and reversals, realised impairments

31 Dec. 2018

31 Dec. 2019

loan losses amounted to EUR 0 (2018: EUR 397 thousand) and reversal of

Cash and balances with banks

15,643

6,443

Acquisitions during the year

976

impairment losses totalled EUR 0 (2018: EUR -132 thousand).

Total, cash and cash equivalents

15,643

6,443

Acquisition value at end of year

982

Other long-term financial placements

29,938

52,475

Amortisation according to plan for the year

152

Total, other long-term financial placements

29,938

52,475

Accumulated amortisation at end of year

158

(EUR 1,000)

Net book value

825

39,639

22,730

Acquisition value at beginning of year

Other long-term financial placements

Accumulated amortisation at beginning of year

Tangible assets Acquisition value at beginning of year Acquisitions during the year Acquisition value at end of year Accumulated depreciation at beginning of year

Office

Equipment

107

Note 7: Derivative instruments 31 Dec.2019

31 Dec.2018

Fair value of option contracts at beginning of year

982

2,092

Fair value of option contracts at end of year

328

982

-654

-1,111

Change in fair value

NDF has received adequate collateral that covers the derivative instrumentsâ&#x20AC;&#x2122;

Other financial placements Fixed income

1,841

1,323

Money market

22,818

22,785

Total, other financial placements

64,298

46,837

109,879

105,756

Equities

market value. The derivative instruments are measured at fair value level 2. Valuation techniques are based on observable inputs, either directly (i.e. as prices)

Total, cash and cash equivalents, other long-term financial placements

or indirectly (i.e. derived from prices).

and other financial placements

Accumulated depreciation at end of year

Fixed income consists of green bonds issued by financial institutions and state backed companies with an investment grade credit rating (22% AAA, 46%

Net book value

AA, 16% A and 16% composite BBB+). Equities consist of a placement in a global climate and environment fund managed by a Nordic commercial bank.

Depreciation according to plan for the year

Money market is placements in a highly liquid moderate yield fund managed by a Nordic commercial bank. The right-of-use asset relating to lease agreements for office premises in Helsinki

The remaining maturity of other long-term placements, counted from the balance sheet date to maturity, is as follows:

is included in the Intangible assets table above. The amount at the end of 2019 is EUR 825 thousand (2018: EUR 0). (EUR 1,000) Up to and including 3 months More than 3 months and up to and including 6 months More than 6 months and up to and including 12 months Placements without a fixed maturity Total

31 Dec. 2019

31 Dec. 2018

11,574

33,354

17,908

18,665

456

29,938

52,475

Notes to the financial statements

Note 9: Credits to sovereign states

(EUR 1,000) Namibia

Credits outstanding according to lending currency:

31 Dec. 2019

31 Dec. 2018

1,183

1,262

Nepal

16,455

17,324

Nicaragua

37,784

39,520

Note 10: Other loans

Note 12: Loans with equity features and equity investments

Other loans outstanding are distributed as follows:

Loans with equity features and equity investments are distributed as follows: 31 Dec. 2019

31 Dec. 2018

15,000

31 Dec. 2019

31 Dec. 2018

Pakistan

6,635

7,150

(EUR 1,000)

31 Dec. 2019

31 Dec. 2018

EUR credits

484,663

503,712

Philippines

9,349

9,964

East African Development Bank

4,099

4,373

African Guarantee Fund (AGF)

SDR credits

156,085

160,629

Rwanda

11,350

11,600

Total, other loans outstanding

4,099

4,373

Facility for Energy Inclusion Off-Grid

Total, outstanding credits

640,748

664,341

Senegal

42,071

42,985

Energy Access Fund (FEI OGEF)

2,561

-4,654

-4,905

Sri Lanka

17,087

17,898

Amortisations on other loans outstanding as at 31 December 2019 show the

responsAbility Energy Holding Company (rAREH)

7,000

636,094

659,435

Tanzania

19,088

19,848

following maturity profile:

Total, loans with equity features and equity

24,561

22,000

3,737

3,982

(Face value in EUR 1,000)

SDR credits, impairment Total, outstanding credits including impairment

Tunisia Credits outstanding:

investments outstanding Total, loans with equity features and equity

273

investments outstanding after write-down

1,366

(EUR 1,000)

22,943

2019

Zambia

20,609

21,176

2020

16,973

16,675

2021-2025

648,414

671,205

2026-2030

1,366

As at 31 December 2019, the write-down for impairment totalled EUR 0 (2018:

2031-2035

1,093

EUR 0) based on assessment of the risk of losses which exists or may exist.

4 ,099

4,373

31 Dec. 2019

31 Dec. 2018

1,446

31 Dec. 2018 30,498

Zimbabwe

Benin

16,529

17,034

Credits outstanding

Bolivia

25,145

25,922

Botswana

3,050

3,309

Credits in default (Zimbabwe)

Burkina Faso

Total, credits outstanding

7,666

6,864

640,748

664,341

Total, other loans outstanding

9,286

9,490

Cambodia

8,151

8,336

Cape Verde

1,520

1,593

As of 31 December 2019, Zimbabwe was more than 180 days overdue with

China

3,124

3,346

payments. In line with the World Bank’s principles for handling Zimbabwe’s credits,

Climate loans outstanding:

948

988

NDF has made a 50% impairment loss on Zimbabwe’s outstanding credits and

(EUR 1,000)

5,863

6,138

payables to NDF.

Lao PDR

22,853

23,571

Ethiopia

273

47,521

22,264

29,721

Dominican Republic

31 Dec. 2018

45,709

Vietnam 31 Dec. 2019

Colombia

31 Dec. 2019

Uganda

Bangladesh

(EUR 1,000)

43,459

45,218

Amortisations on credits outstanding as at 31 December 2019 show the following

Amortisations on climate loans outstanding as at 31 December 2019 show the

Honduras

28,059

28,553

maturity profile:

following maturity profile:

Indonesia

8,273

8,921 31 Dec. 2019

31 Dec. 2018

24,629

2019-2020

27,383

28,451

2021-2025

177

2021-2025

156,119

155,502

2026-2030

239

18,952

2026-2030

172,919

172,300

2031-2035

421

6,782

7,224

2031-2035

148,998

148,443

2036-2040

485

Mauritius

1,624

1,787

2036-2040

99,476

99,173

2041-2045

125

Mongolia

21,083

21,680

2041-2045

35,852

35,842

Total, climate loans

Mozambique

51,185

52,735

Total, credits outstanding

640,748

664,341

4,335

4,542

23,372

23,891

2019

3,537

3,739

2020

Lao PDR

42,188

43,891

Malawi

18,034

Maldives

Kenya Kyrgyz Republic

Write-down

24,561

22,000

Note 11: Climate loans

Ghana

Jamaica

(EUR 1,000)

31 Dec. 2019

31 Dec. 2018

(EUR 1,000)

1,446

Notes to the financial statements

Note 13: Paid in capital

Note 14: Related party disclosures

Note 16: Post balance sheet events

The Nordic Council of Ministers can, upon a proposal by the Board of Directors

According to the constituent documents of NDF, the Fund’s principal office shall

There have been no material post balance sheet events that would require

of, decide upon an increase in the authorised capital stock of the Fund. To become

be located at the principal office of NIB. Furthermore, the Statutes of NDF set out

disclosure or adjustment to these financial statements.

effective, such a decision usually requires the approval of the parliaments of the

that that the Fund’s Control Committee members appointed by the Nordic Council

Member countries.

shall be the same persons as appointed by the Council to the Control Committee of

The subscribed capital of NDF, which initially was SDR 100 000 thousand,

NIB. In addition, the Statutes of NDF set out that the powers vested in the Board

has been increased three times, most recently in August 2000, when the Nordic

of Directors may to the extent appropriate be delegated to the Fund’s Managing

Council of Ministers passed a resolution to increase the capital of NDF by EUR

Director and/or to NIB.

330 000 thousand.

NDF acquires services at cost from NIB and enters into transactions with NIB.

After this replenishment, the capital of NDF amounted to SDR 515 000

The outstanding balance of claims and debts between NDF and NIB are presented

thousand and EUR 330 000 thousand. As of 31 December 2019, SDR 515 000

in the table below. No interest is charged during the year (2018: 0 EUR).

thousand - the equivalent of EUR 691 405 thousand- and EUR 330 000 thousand, totalling EUR 1 021 405 thousand has been paid in by the member countries. Subscribed capital as at 31 December 2019 (EUR 1,000) Denmark

SDR

EUR

115,067

82,500

25 18

96,726

58,740

Iceland

5,453

3,300

Norway

101,591

74,250

Sweden

196,163

111,210

Subscribed fund capital

515,000

100%

330,000

100%

Finland

NDF’s outstanding

Rental

debt to NIB

claim on NIB

expenses

2019

148

2018

147

(EUR 1,000):

Paid in subscribed capital of NDF as at 31 December 2019.

Note 15: Currency exchange rates EUR rate on

EUR rate on

31 Dec. 2019

31 Dec. 2018

DKK

Danish krone

7.47168

7.46741

ISK

Icelandic króna

135.9166

133.2286

(EUR 1,000)

in SDR

Converted into EUR

in EUR

Total

NOK

Norwegian krone

9.86548

9.94588

Denmark

115,067

153,858

82,500

236,358

SEK

Swedish krona

10.4486

10.24248

Finland

96,726

130,592

58,740

189,332

USD

US dollar

1.12319

1.14557

Iceland

5,453

7,303

3,300

10,603

SDR

Special Drawing Right

0.8091

0.82356

Norway

101,591

136,354

74,250

210,604

Sweden

196,163

263,299

111,210

374,509

Paid-in fund capital

515,000

691,405

330,000

1,021,405

100%

NDF uses exchange rates acquired from a leading market data provider based on rates prevailing at 13:00 GMT at 31 December except for Special drawing right (SDR) which is based on the International Monetary Fund (IMF) last published rate of the year.

rAREH is a high-performing clean energy producer which aims to increase the renewable energy supply in Sub-Saharan Africa across a diversified portfolio of renewable energy plants, at a reasonable price by building capacity with local promoters and financial institutions. Pictured the Rwaza hydro station in Rwanda. Photo credit: Jagath Navinda

Independent Auditor’s Report To the Control Committee of Nordic Development Fund Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Nordic Development Fund (the Fund) which comprise the statement of financial position as at 31 December 2019, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion the financial statements present fairly, in all material respects, the Nordic Development Fund’s financial position as at 31 December 2019 and its financial performance and its cash flows for the year then ended in accordance with the accounting principles described in the notes to the financial statements. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of Financial Statements section of our report. We are independent of the Fund in accordance with the International Ethics Standards Board of Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information than the annual accounts The Board of Directors and the Managing Director are responsible for the other information. The other information comprises information included in the report of the Board of Directors, but

Independent Auditor’s Report does not include the financial statements and our auditor’s report thereon. We have obtained the report of the Board of Directors Our opinion on the financial statements does not cover the other information. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of the financial statements in accordance with the accounting principles described in the notes to the financial statements, and for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the Fund’s ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless management either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Fund’s financial reporting process.

Auditor’s responsibility for the Audit of Financial Statements Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA’s will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with ISA’s, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: ● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

● Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Fund to cease to continue as a going concern. ● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control. ● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Independent Auditor’s Report Report on other requirements Opinion In addition to our audit of the financial statements, we have also audited the administration of the Board of Directors and the Managing Director of Nordic Development Fund for the year 2019 in accordance with the Terms of the Engagement. In our opinion the administration of the Board of Directors and the Managing Director, in all material aspects, complied with the Statutes of the Fund. Basis for opinion We conducted the audit in accordance with generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the Fund in accordance with professional ethics for accountants and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Responsibilities of the Board of Directors and the Managing Director All the powers of the Fund shall be vested in the Board, which may delegate these powers to the Managing Director or the Nordic Investment Bank or both to the extent considered appropriate based on Section 7 of the Statutes. The Managing Director is responsible for the conduct of the ordinary operations of the Fund and shall follow the guidelines and instructions given by the Board. Auditor’s responsibility Our objective concerning the audit of whether the Board of Director’s and the Managing Director’s administration have complied with the Statutes of the Fund, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect has acted in contravention of the Statutes.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect actions or omissions that can give rise to liability to the Fund. As part of an audit in accordance with International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. The examination of the administration is based primarily on the audit of the accounts. Additional audit procedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relationships that are material for the operations and where deviations and violations would have particular importance for the Fund’s situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion.

High-capacity batteries help extend clean, affordable energy from micro-grids to families living in off-grid rural areas in Tanzania. Photo credit: Simon Kolton

Helsinki 13 February, 2020 Ernst & Young Oy Authorized Public Accountant Firm

Ernst & Young AB Authorized Public Accountant Firm

Terhi Mäkinen Authorized Public Accountant

Mona Alfredsson Authorized Public Accountant

Statement by the Control Committee

Statement by the Control Committee of the Nordic Development Fund on the audit of the administration and accounts of the Fund

To the Nordic Council of Ministers In accordance with section 9 of the Statutes of the Nordic Development Fund, we have been appointed to ensure that the operations of the Fund are conducted in accordance with the Statutes and to bear responsibility for the audit of the Fund. Having completed our assignment for the year 2019, we hereby submit the following report. The Control Committee met during the financial year as well as after the Fund’s financial statements had been prepared, whereupon the necessary control and examination measures were performed. The Fund’s Annual Report was examined at a meeting in Helsinki on 13 February 2020, at which time we also received the Auditors’ Report submitted on 13 February 2020 by the authorised public accountants appointed by the Control Committee.

Following the audit performed, we note that: — the Fund’s operations during the financial year have been conducted in accordance with the Statutes, and that — the financial statements, which comprise the balance sheet as at 31 December 2019, and the income statement, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, are prepared in all material respects in accordance with the accounting principles described in the notes to the financial statements. The financial statements show a loss of EUR 15,173,179.43 which will be carried forward to new account. We recommend to the Nordic Council of Ministers that: — the income statement and the balance sheet will be adopted, and — the Board of Directors and Managing Director will be discharged from liability for the administration of the Fund’s operations during the accounting period examined by us. Helsinki 13 February, 2020 Jan-Erik Enestam Chairman

Johan Andersson

Vilhjálmur Árnason

Wille Rydman

Sjúrður Skaale

Michael Tetzschner

Nordic Development Fund, Annual Report 2019 Layout: Rebekka Gröhn Cover Image: EEP Africa/Miguel Oliveira

Cover Image: Low-income Ugandan families have access to safe and affordable clean cooking solutions, such as energy efficient cook stoves and eco-charcoal briquettes, from Green Bio Energy. The company has a strong focus on women entrepreneurship and received funding from EEP Africa that helped create 250 jobs and improve the lives of 750,000 Ugandans. Photo: Miguel Oliveira, EEP Africa

Nordic Development Fund (NDF) P.O. Box 185 FIN-00171 Helsinki, Finland Offices: Fabianinkatu 34 Telephone: +358 10 618 002 Telefax: +358 9 622 1491 E-mail: info.ndf@ndf.fi www.ndf.fi 48