ING last year booked a record number of sustainable finance transactions. Was this just down to the government-led push to reach net zero by 2050, or is there more to the story?
We have boosted our capacity, created more dedicated focus on sectors and countries, and customised our offering
ING is constantly pushing the bar to help clients meet their sustainability targets, with advice, insights, and tailor-made solutions. In 2021 we booked a record number of sustainable finance transactions – 317, against 123 in 2019 and 139 in Covid-impacted 2020. We also launched ‘first in kinds’ for ING, like sustainable supply chain financing and bonds supporting a circular economy. So, what’s triggered this upswing?
“The push from governments to invest in green activities obviously drove market momentum," says Robert Spruijt, head of Sustainable Finance EMEA. “Especially in Europe, with the European Green Deal aiming to make the EU climate neutral by 2050. But so too did a growing understanding on the part of investors and businesses that sustainability makes companies more resilient to risk. Also, consumers are more and more looking to buy from sustainable businesses.” But that’s not the whole story, as Robert explains. “Anticipating the growth in demand, we boosted capacity and customised our approach for individual countries and sectors, which led to more focus and much more traction in the market. Because of ING’s pioneer role in sustainable finance and capacity to innovate in this area, we’ve been well placed to continue expanding our range of sustainable finance activities, keeping pace with continued market growth.”
Our sustainability-linked solutions can help clients cut greenhouse gas emissions, diversify their workforce or use less water
Sustainability-linked loans – a game changer
ING’s focus has been trained on sustainability for well over a decade. Robert: “At first, we engaged clients in dialogues around specific themes, such as water reduction or recycling. In the years that followed, as the sustainable finance market developed, we added a range of solutions across the product scope of the bank, such as Lending, Capital Markets, Transaction Services and Financial Markets. We also extended our reach across sectors and countries.”
In 2017, ING launched a game changer in the market – the sustainability improvement loan, which helps companies raise their sustainable profile by linking the financing cost of their loan to their sustainable performance. This could be in the area of greenhouse gas emissions for example, the diversification of the workforce or reducing water use. And while green bonds have always been a frontrunner in terms of market volume, booking a record $621 billion in 2021 (according to Bloomberg New Energy Finance), ING’s sustainability improvement loan grew fast over five years, creating a wave for sustainability-linked loans in an already growing market that led to a total market volume of $428 billion in 2021. However, its impact on transition objectives does depend on how ambitious a company’s targets are, and how important they are to their business model – something that will continue to demand close attention.
2021 peak – a broad reach
The 2021 peak was seen in virtually all products and solutions that fall under the umbrella term ‘sustainable finance’. Alongside sustainability-linked financing solutions, the term covers activity-based financing for both environmental and social purposes, such as ‘green’ buildings and transportation, renewable energy, optimising energy efficiency, hospitals and Covid-related programmes. At ING, the term also covers structured finance solutions for sustainable technologies such as bioplastics, as well as recycling, sustainable heating systems, and sustainable investment.
And the peak affected all regions and sectors, although in the bond market, financial institutions stood out. Of the 317 sustainable finance transactions closed in 2021, 245 were in EMEA, 26 in Asia Pacific, and 46 in the Americas. “And we saw some firsts,” adds Robert. “Our first sustainable supply chain financing, our first product-as-a-service financing, our first green asset-backed security and our first green bond primarily focused on the circular economy.”
Market momentum
This swell of success came after an acceleration in market dynamics in recent years. Robert: “After the European Investment Bank and World Bank first issued a green bond back in 2007, it took eight years to reach $100 billion worth of sustainable finance products issued. Compare that with a doubling over the past year – from $763 billion worth in 2020, to a massive $1.6 trillion in 2021. That’s an incredible leap. The push from governments to reach net zero by 2050 has really accelerated that.”
We continue to drive clients’ transition to a sustainable, low-carbon economy with new solutions
ING’s Terra approach
Anne-Sophie Castelnau, ING’s global head of Sustainability, underlines the importance of maintaining momentum. ”We continue to drive clients’ transition to a sustainable, low-carbon economy with new solutions, using our Terra Approach. After all, it’s through our financing that we can have the most impact. We currently steer hundreds of billions of euros in our loan book towards meeting net-zero climate goals.”
Looking forward, although external effects such as rising interest rates could, for example, potentially slow down bond issuances, the pace of the market is likely to remain, backed by a continued push from governments, businesses, investors and consumers. Given the current extreme geo-political tensions, one trend that has never been so urgent is the need to reduce our dependence on fossil fuels – one that will further support the drive to a more sustainable economy.