Green Advisory: Managing change together

However, adjusting one's business model to become sustainable is anything but easy. Depending on the industry, extensive changes may be necessary to achieve this, such as in the energy industry or the construction sector. Even companies from sectors facing less significant upheavals must also critically examine their business, in order to remain an attractive investment for their shareholders amongst other reasons.  In this context, the EU taxonomy adopted this year and the corresponding reporting requirements on non-financial key figures have not to the least increased transparency towards investors.  Regulatory requirements are likely to continue increasing in the coming years.

To successfully manage this change, substantial investments and costs are sometimes necessary. Banks are in a position to work closely with companies in their customer base during this process of change and actively support them with green advisory services. However, this should not only involve sporadic financial transactions, but a new and holistic approach to the entire business model. This is because a comprehensive sustainability strategy spans across all central business areas.

This is why Green Advisory teams usually include M&A specialists who assist companies in the process. After all, the transformation to a more sustainable business model means not only making the necessary investments, but also reviewing the existing portfolio: Many companies will have to divest and discontinue non-sustainable business units in the coming years. At the same time, they may have to buy in other businesses that can advance their own sustainability strategy.

This holistic approach of transforming to a more sustainable business model can also be reflected in the capital structure: Companies that finance sustainable investments through sustainable instruments may even receive monetary incentives through so-called "greenium" or margin reduction. For example, ING is helping a leading global cement manufacturer to link its key financing instruments to sustainability targets. The challenge: Cement production is very CO2-intensive, making the reduction of greenhouse gases crucial for this industry. The customer has, therefore, issued a sustainability-linked bond. With this bond, the coupon is linked to the achievement of a CO2 reduction target. If the Group has not achieved this by 2030, the coupon increases.

As a bank, planning for the long term together with our customers, integrating their sustainability strategy into their financing structure, and securing their business for the long term is of central importance to us in two respects. On the one hand, we want to equip and prepare our customers for the future. But on the other hand, we also want to align our loan book with the Paris climate targets - using the Terra approach. Thus, if we as a lender finance an investment that reinforces a company's sustainability strategy and the company becomes "greener" as a result, this also helps us on a path to a 1.5°-compatible loan book.