Leonie Schreve, ING’s global head of sustainable finance, tells Business Review about the concept of sustainable finance, the lender’s involvement in this field, and how this approach will help companies to develop a sustainable business and be increasingly competitive in the future.
By Anda Sebesi
What are the main international trends in sustainable finance?
Banks have a major role to play in supporting sustainable development, and socially responsible behavior and policies. Although ING’s own operations have been climate-neutral for over a decade, we can make our biggest contribution to a sustainable future through financing. ING decided in 2012 to integrate sustainability fully into its commercial strategy. We believe sustainable business is better business and by focusing on forward-thinking companies that are driving change to become more sustainable, we will have a positive impact on business in the long term. By supporting clients as they future proof their business, we are future proofing ours. Sustainability practices have evolved from being predominantly cost-cutting projects to tangible, revenue-driving strategies.
Following the Paris Agreement, we have seen a significant growth in the sustainable finance market. As governments, companies and investors are seeking to meet global targets to reduce greenhouse gas emissions and combat climate change, the sustainable finance market provides the financing solutions to fund and invest in the transition to a low-carbon economy.
For this reason, we’re seeing significant interest from our clients and investors in green bonds and green loans, which fund green projects with clear environmental benefits, such as renewable energy, low-carbon transport and sustainable buildings, as well as in sustainability improvement loans, an instrument that rewards those companies that are committed to improving their sustainability performance. Furthermore, we’re seeing an increasing diversification of the projects funded by our clients, in alignment with the UN Sustainable Development Goals. Across the globe, ING’s clients are also increasingly funding projects with a positive social impact, such as affordable housing projects and improving access to basic services.
Sustainability is an important business opportunity. Considering the increasing regulatory and policy pressure, and society’s awareness of the urgency to transition towards a more sustainable economy, we expect the sustainable finance market to continue to grow and launch innovative financing solutions in the coming years.
How can you define the green finance market and at what level does it stand now?
The issuance of sustainable debt grew significantly to over USD 240 billion in 2018, as the market evolved to meet increasing demand from investors. In the first few months of 2019, this growth trend accelerated. ING supported multiple sustainability transactions in the first quarter of 2019, several of which were sustainability finance ‘firsts’: the first green bond for an auto leasing company, the first sustainability improvement loan in the US general industrial sector, and the first green bond in the Philippines to fall under ASEAN standards.
An important upcoming development that will continue this trend is the European Commission’s initiative to launch a green finance taxonomy which will bring additional clarity to market participants regarding the definitions of green projects and potentially reduce transaction costs.
Simultaneously, investors are increasingly considering environmental, social and governance (ESG) factors in their investments. Larry Fink, CEO of the world’s largest asset manager BlackRock, said that investors should expect “every company [to] … show how it makes a positive contribution to society.” More recently, he claimed that within five years all mainstream investors will use ESG measures to value companies. As a response to this movement, all the big credit rating agencies are also starting to assess how ESG factors influence their rating decisions.
ING financed 12 green bond deals in Q1, plus 16 green loans/improvement loans, and delivered a series of first in-kind transactions in the market. Since we designed and launched the Sustainable Improvement Loan onto the market in 2017, we have closed over 50 of these transactions and lead more than half as sustainable coordinator in the financing syndicate.
From a sustainable perspective, what do you think will be the future of polluting industries worldwide and of those who are large consumers of natural resources?
The industrial sector, which consumes significant natural resources, is one of the most exciting and significant opportunities for ING to work with our clients in their transition towards tomorrow’s economy. We actively seek a dialog with these clients to explore opportunities to improve their sustainability performance and identify new business models that are more sustainable, for instance, by exploring circular economy opportunities.
The circular economy is an exciting and inspiring approach to creating a new economy, a new way of consuming, using and producing products. It’s about rethinking how we use raw materials and resources to create a sustainable economy free of waste and emissions. This approach will bring significant opportunities to the industrial sector.
These efforts also align with ING’s pledge to steer our EUR 600 billion lending portfolio towards the Paris Agreement’s two-degree goal. Engaging with our clients in carbon-intensive sectors and supporting them in their transition towards a sustainable economy is part of our role as a bank. With the aim to create an industry standard we designed – together with 2Dii – an open source methodology (the Terra approach), which is already being tested by over 15 banks globally.
In light of climate change, how do you think a sustainable business will look in ten years from now?
We expect sustainable business to become mainstream in the coming decades. Non-sustainable companies will not be competitive in the future. Companies earn their license to operate by conducting their business in a competitive and responsible way. Sustainability is a competitive advantage. Sustainable companies make more efficient use of natural resources, have a lower likelihood of financial penalties in a context with increasing environmental regulations and also face lower reputational risks than their counterparts.
ING’s involvement in sustainable finance
In 2017, ING collaborated with Philips on the first loan linking the interest rate to the client’s sustainability performance and rating.
June 2017: ING supported Barry Callebaut, manufacturer of chocolate and cocoa products, in amending and extending its revolving credit facility of EUR 750 million to be linked to the company’s sustainability performance, a first in Switzerland.
August 2017: ING was joint lead arranger in the GBP 250 million bond for Anglian Water, the UK’s first water sector green bond.
October 2017: ING supported Abertis, the international toll roads manager, to develop its first sustainable loan for a total of EUR 100 million.
January 2018: ING launched Sustainable Investments, committing EUR 100 million of capital to investments to support sustainable “scale-ups”. The fund’s first investment was awarded to Exasun, a developer of solar panels and solar roof tiles that are at least twice as durable as traditional solar panels and generate more energy. In September 2018, ING’s sustainability fund’s second investment was awarded to Black Bear Carbon (BBC), a company that recycles old tires into a raw material used to make things like pen ink, smartphone covers and new tires.
February 2018: ING partnered with the European Investment Bank (EIB) to provide EUR 300 million to finance green shipping.
ING and Korea Housing Finance Corporation (KHFC) worked together on the first social covered bond in Asia. ING acted as a joint lead manager and joint book runner for this five-year EUR 500 million bond and is part of a collective of four banks.
February 2018: ING France issued EUR 150 million to Gecina, the largest European office REIT, the first sustainability-improvement loan measured by its GRESB rating.
May 2018: ING supported a waste management business, Renewi, in converting its main banking borrowing into a EUR 550 million green loan. It is the first UK company with a loan margin linked to achieving environmental and safety key performance indicators.
September 2018: ING acted as MLA and joint green loan coordinator in the SGD 1.2 billion refinancing term loan secured by Frasers Tower, Singapore Tanjong Pagar CBD. It is the first syndicated green loan in South East Asia under Green Loan Principles, which were introduced by the Loan Market Association and Asia Pacific Loan Market Association in March 2018.
November 2018: ING announced the successful issue of a 12-year EUR 1.5 billion and seven-year-long USD 1.25 billion green bond – its second own green bond transaction.
January 2019: ING UK worked with South East Water to develop its sustainable finance framework under which the company can issue Sustainability Bonds and Sustainability Loans. The delivery enables a sustainable supply of top-quality drinking water to 2.2 million customers in the south east of England.