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ING: natural capital is material for sustainable finance
As a globally operating bank in over 40 countries, ING published its first integrated report in 2014. With a balance sheet of more than EUR 840 bn (2015), the bank’s Sustainability Direction consists of two main pillars: financial empowerment and sustainable transitions. This solution is part of a larger series that were published in 2016.
ING takes natural capital into account in its core business through a broad strategy. It manages social and environmental risks via the Environmental and Social Risk Framework. It proactively identifies, helps and promotes more sustainable clients. It helps clients to sustainably invest and finally, it shares knowledge on natural capital. ING’s focus on sustainability driven business resulted in EUR 23,8 bn Sustainable Transitions Financed (2015). These clients are environmental trendsetters within their own sectors.
At the heat of risk management
Rikjan van Zalingen, Issue Manager at ING: "Our ESR department advises on potential environmental and social sensitivities at both client and transaction level. Every corporate client of ING is assessed against the ESR Policy framework to ensure compliance before we do business. Depending on the sector the client is active in, elements of the screening consist of – for example – profiling in water management, air pollution, soil erosion, land degradation, and natural stock depletion. The outcome of the Client ESR Assessment together with the outcome of the Transaction ESR Assessment will determine the overall risk profile of the business engagement and approval process thereafter. Once we decide to finance, this is followed by continuous monitoring and evaluation.’’
Opportunities for sustainable impact
Armand Ferreira, ING's Sustainable Finance Director, and Jochen Harkema, Sustainable Investment Advisor: "Next to ESR’s risk mitigation, we also pro-actively look for outperforming clients who are more sustainable than their peers. Our Sustainable Finance team drives and promotes sustainable business opportunities within ING. By focusing on clients and projects with outstanding sustainable practices, we strive to ensure a healthy and strong portfolio and support tomorrow’s economy. We developed a scorecard to identify the environmental outperforming parties compared to their peers in each sector, like natural resources, utilities, automotive etc. We do not want to risk missing out on these opportunities."
ING experienced that climate goals help to clarify business cases and incorporates long-term information in the business. "Small companies are more adaptive in tackling societal issues but are more prone to financial risk. To spread the financial risk, we made thematic funds with a resilient mix of companies. In our ING Groenbank fund we invest in projects with a green certificate from the government. We also launched our first Green Bond in 2015 totalling USD 800 mln and EUR 500 mln which will be used to (re)finance loans in renewable energy, green buildings, public transport, waste management, water management and energy efficiency. We aim to finance EUR 35 bn Sustainable Transitions by 2020 and realised 79% so far."
"With ING Private Banking and Investment, we invest in listed companies, assets, company and state obligations and in investment funds. Impact investments are incorporated in our sustainable client portfolios. Sustainable business is better business, so we want to mainstream sustainability."
Water at risk
Gerben Hieminga, Economist at ING: "Some sectors are more sensitive to operational risks. Beverage companies for example use large quantities of water. We expect that the topic of water will become increasingly important, which is described in our report ‘Too Little Too Much’. Water stress (too little) and flood risk (too much) pose us two challenges. Improved water efficiency in agriculture and responsible water usage by corporations will be key to secure adequate water availability in the future and limit economic damage. We used data from WRI/Aqaeduct, Aquastat and National Accounts to gain insights on potential sectoral and economic risk and published clarifying country infographics to share our knowledge."
ING is one of the frontrunners that formed part of a Community of Practice of Financial Institutions and Natural Capital (CoP FINC), which aimed to accelerate the transition to sustainable finance. This solution is part of a larger series of best practices that resulted from this CoP.