ING will steer portfolio towards two-degree goal to help combat climate change

ING has a lending portfolio of over €500 billion across many sectors, which we’ll now begin steering towards meeting the Paris Agreement’s well-below two-degree goal.

We’re able to start doing this by co-creating an innovative, accurate way to measure our portfolio, called the Terra approach. With this, we’re the first global bank to commit to using science-based scenarios to steer our business strategy.

The Terra approach looks at the technology shift that’s needed across certain sectors to keep the rise of global temperatures to well below two degrees Celsius. In the automotive sector, for example, it’s not enough to lower emissions by making fewer petrol-powered cars – more electric cars must be made, too.

Terra then measures that needed shift in technology against the actual technology clients are using today and planning on using in the future. This is where financing comes in – and where ING can have an impact.

“Banks have a responsibility to finance positive change and we are stepping up to that. We believe the Terra approach will enable us to make a real difference,” said Isabel Fernandez, head of ING Wholesale Banking.

We worked on the Terra approach with the 2˚ Investing Initiative (2˚ii), a global think tank for researching climate-related metrics in financial markets. 2˚ii is backed by bodies including the European Commission and various European governments, and supported by academics, expert groups and civil society organisations.

Certain sectors

Terra focuses on the sectors where the most greenhouse gas emissions come from: energy (including oil, gas, renewables and conventional power), automotive, shipping & aviation, steel, cement, residential mortgages and commercial real estate.

The information on what technology changes are needed by when is given in detailed scenarios per sector made by independent organisations like the International Energy Agency.

Data on the assets companies use for their production today, as well as their investment plans, comes from databases that track public and private companies of various sizes around the world. This means that clients aren’t burdened with extensive requests to provide data to ING.

Of course, each sector requires a custom approach, which is ultimately what will make Terra so effective. For some sectors, the approach needs to be refined further, which we will work on with 2˚ii as well as ING’s different sector teams.

What, how much, by when

Terra works in such a way that it doesn’t only tell us what needs to shift, but how much and by when. Applying it to these sectors will allow us to identify those clients that are leading the transition to a low-carbon economy as well as those that need ING’s help the most.

It’ll show us whether our lending is adding up to contribute to climate resilience or not.

Once we have that information we can focus on the changes that are required for the sector as a whole, and consequently, in proportion, our loan portfolio. This means that we focus on investments and divestments that are needed by our clients and potential clients, rather than only changing the composition of our portfolio.

The Terra approach complements the other ways we are working to combat climate change. For example, our commitment to reduce our coal exposure to close to zero by 2025, and the way our sustainable improvement loan rewards companies for their sustainability performance.

Open to other banks

The Terra approach is open source and we are in dialogue with other banks and stakeholders. Most banks we speak to are positive about the methodology and recognise the significant progress ING is making. All banks would benefit from having an industry-wide standard, increasing transparency and therefore our collective effectiveness in fighting climate change.

“We are delighted that a multinational bank like ING helped us pioneer this methodology for financial service providers,” said Jakob Thomä, managing director of 2˚ii. “The methodology – and its resulting two-degree aligned portfolios – will be an important contributor to combating climate change. We hope other banks will follow suit and adopt it as well.”

Our implementation of Terra starts now by assessing the target sectors in our lending portfolio. It will be an ongoing process. We intend to report on our progress in our Annual Report and are working to establish targets for the various sectors.

We are confident that the Terra approach will make a valuable impact because it enables us, and the rest of the banking sector, to finance the change the world needs to move towards a low-carbon economy.

How does it work? Terra in four steps

  1. We’ll use scenarios for the sectors responsible for most greenhouse gas emissions. These outline which technology must shift, by how much and by when to keep the rise in global temperatures to well below two degrees.
  2. We measure that needed shift in technology against the actual technology clients are using today and planning on using in the future. Where relevant, we’ll look at whether individual clients have a strategy to adequately shift away from greenhouse-gas-intensive technologies towards greener technology.
  3. We’ll support clients on their path to a sustainable future and are seeking to support potential clients that are contributing to the technology shift needed.
  4. We measure our loan book to see whether it’s aligned with the shift to a low-carbon society.
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