Clarity, connection and consistency: The key to unlocking sustainable finance

Thinking about the journey towards net zero, how optimistic do you feel today about the pace and scale of change within the financial sector?

The good news is that the financial sector is embracing its responsibility to invest in projects that support the transition to a more sustainable economy.

That doesn’t mean that there aren’t challenges. It's hard to remain optimistic every day because there is so much that we need to accelerate to get to net zero. One thing that keeps me up at night, for example, is the challenge of balancing regulatory control with the ability to finance change. For me it is clear we need to treat transition, climate, and nature risks more and more also as financial risks, and we need regulation to ensure companies identify and manage those risks effectively. At the same time, we need to make sure that regulation is helping to speed up the transition rather than slowing it down by becoming too complex or burdensome.

Those of us working in the sustainable finance markets can see first-hand the many challenges businesses face in their transition journey. Their commitment and the progress these businesses are making inspire real optimism. I have also been encouraged to see companies becoming more educated, more science-based and more rigorous in how they set targets and work towards them.

How do you see sustainable finance evolving in that context?

Firstly, we need to get to know our clients and their transition plans better. We want our clients to be confident about their net zero ambitions and targets and we, as a bank, to be confident in our ability to help them meet their goals. This is one of the main reasons why we have developed tooling to assess the transition plans of our clients. Last year, we assessed 2,000 wholesale banking clients on their climate transition plans. As a result, we’re on a much stronger sustainability engagement path with our clients, leading to more strategic discussions and transition financing opportunities.

Secondly, as we progress further down the road to net zero, it is becoming increasingly important for businesses to secure financing for the capital expenditure and investments needed to support the transition. As a bank, we are therefore focusing more on understanding where the funding is needed and helping our clients invest appropriately.  

As these conversations are moving beyond climate, ING is also expanding its scope towards other topics contributing to, and interlinked with, climate action – such as nature, plastics and the circular economy. To achieve these ambitions, we created a Sustainable Value Chains team in 2023 which identifies related new business opportunities across existing and new value chains.

Today we’re increasingly assisting our clients as they take real action. This is vital to get to a more sustainable future.

Our approach to transition risk enables us to better understand where our clients stand in their journey towards net zero, how we can support them, and finally how we can steer our funding towards those clients who are willing and able to transition to meet our net zero ambition.

What is investors’ tolerance for lower returns in sustainability investments at the moment?

Some investors may accept a lower return if they are confident the project they are investing in is green. But investors can’t simply use sustainability as a justification for putting riskier projects on their balance sheets because their stakeholders will not accept that.

This is one of the challenges with the energy transition. There are plenty of opportunities to decarbonise society, but many rely on newer technologies and business models that are not proven yet or do not meet return requirements. Investors must balance caution with boldness, carefully assessing promising yet unproven technologies that have the potential to make the difference. This is an area where governments could also play a more influential role, by backing public-private partnerships that help de-risk the large investment projects as example.

When it comes to ING’s portfolio, we also measure transition risk. Our approach starts with an analysis of the inherent transition risk for a certain sector to which we then add our knowledge of the individual client transition plans. As such we combine the sector perspective on transition risk with our specific client portfolio knowledge to assess transition risk.

Does that mean you have to avoid companies or whole sectors if they are decarbonising too slowly?

No, because if you manage transition risk carefully, it gives you room for manoeuvre in your portfolio. Some sectors have a higher inherent transition risk, but that doesn't mean that every client in that sector should go into a ‘bad bucket’. Our approach to transition risk enables us to better understand where our clients stand in their journey towards net zero, how we can support them, and finally how we can steer our funding towards those clients who are willing and able to transition to meet our net zero ambition.

How does ING work with external partners in its sustainable activity?

We’re currently seeking out more partnerships, particularly as we try to step up our advocacy work. We spend a lot of time with institutions such as UNEPFI, the World Economic Forum, and other institutions that are trying to make a difference. It’s worth taking the time to fully understand the specific requirements and implications of each transition plan. Then you can connect with partners that will help you make solutions work for specific opportunities.

The best way to support clients is to tell them what we can deliver and what we expect of them on their transition journey – and to then help them get where they need to be.

Are these investments largely focused on environmental initiatives or are you exploring the social and governance aspects of ESG?

It’s true that there is still a lot of emphasis on the E of ESG. And, within that, there’s an additional focus on climate mitigation because of having a single global measure of GHG emissions reduction which can be applied across sectors from a reporting perspective. For other E related issues (such as nature) and for Social related issues, it’s more difficult to translate goals into measurable and transparent outcomes.

However, if we limit our focus only on climate mitigation or decarbonization in our sustainable financing, we will not be contributing to the systemic change that the world needs.

Financial institutions have a key role to play to enable these transition investments, but capital will only move in support of net zero and other sustainability goals at scale when the economics make sense

Finally, is there any advice you would give to companies engaging with financial institutions around sustainability financing?

The world of sustainable finance has become more complex because of the growing amount of regulation and guidance that surrounds it. This means that structuring sustainable finance transactions is also becoming more complex. It is important that companies prepare themselves well for this process. And it is also important to realise that banks and investors will each have their own questions and areas of interest.

As banks and investors, we have a responsibility to ensure our questions are not an unnecessary burden. This can pose an interesting commercial dilemma. If we are too demanding of clients, we may not win the financing mandate. If we are not demanding enough, are we really supporting the transition?

The best way to support clients is to tell them what we can deliver and what we expect of them on their transition journey – and to then help them get where they need to be. By focusing our energy where it matters most – on actionable strategies and impactful partnerships – we can help accelerate the journey to net zero and drive systemic change.

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Society is transitioning to a low-carbon economy. So are our clients, and so is ING. We finance a lot of sustainable activities, but we still finance more that’s not. See how we’re progressing on ing.com/climate