Environmental and social risk management
As a global bank, our influence is through the ways we channel the flow of money entrusted to us. With this influence comes responsibility. For us, this means making transparent choices about how, where and with whom we do business. We are guided by our ESR policy framework, which we updated as of 1 July 2019. You can read more about that below.
We check every transaction and every client against our environmental and social risk policies. If they don’t meet our standards, and aren’t willing to change, we don’t do the deal.
While these policies are global and apply to all customers and clients, it’s our corporate clients that often have more significant potential environmental and social impacts. These clients account for about 30% of our total lending portfolio.
There are certain sectors and countries that are totally excluded from financing. For example, we don’t finance things like fur production, cosmetic animal testing, controversial arms industries or deforestation of rain forests.
As we assess potential clients and deals, our approach is to have a dialogue and support them in improving their environmental and social impact where possible. Our response to funding requests is often, “yes, but…”, outlining improvements that the company will have to make first. We feel that this is how we can make the most positive impact. One example is with our client Wilmar, which you can read about below.
ING’s ESR management is in three steps: creating and maintaining our policy framework; conducting the screening of transactions and clients; and monitoring the relationship after an agreement is reached. For examples of the ESR team in action, see ‘Should we say ‘no’ to gold’ and ‘A responsible road’ on ing.com.
Updating our ESR policy framework
The ESR policy framework is reviewed regularly to ensure we adequately identify and manage not only existing but also new environmental and social risks. We conducted a full review of the ESR policy framework in 2018. This was done with the active participation of internal stakeholders and guidance from external stakeholders such as clients, peers and NGOs.
Changes to the updated ESR policy framework (valid as of 1 July 2019) include standalone human rights and climate change policies. The updates reflect external developments, societal expectations and our ambitions for these topics and sustainability in general.
We actively manage potential climate and human rights risks through our framework and regularly engage with stakeholders to inspire clients, peers and others to do the same. In May 2019 for example, we hosted a meeting with the UN High Commissioner for Human Rights and the Dutch private sector to discuss the role and leverage of the private sector in this important area.
As part of our framework, we restrict a number of activities from financing because we consider them too harmful to people or the environment, or because we foresee legislative developments that might influence our clients. New restrictions in the updated framework include asbestos and small arms and light weapons. We have a zero-tolerance policy for some of the restrictions, such as with companies involved in the production of cluster munitions. For others, we try to refrain as much as possible from any form of involvement, whether directly or indirectly.
The new framework also affects companies with both controversial and non-controversial activities. We’ve lowered the limit that we generally use to determine whether to exclude existing clients to 30% (from 50%), meaning we now exclude them if over 30% of their revenue comes from controversial activities. For new clients this threshold is generally even lower.
Download the updated ESR policy framework here (PDF 1,1 MB).
An example of how our policies form part of our client engagement process:
Wilmar International Limited
“In implementing our Environmental and Social Risk Framework, we frequently engage with clients on specific topics and industry sectors. In the palm oil industry sector for example, there are at times issues linked to deforestation in Southeast Asia and Africa, and illegal labour practices on some plantations.
We have engaged in discussions on environmental and social issues with Wilmar, among other players in the sector. Our discussions aimed to understand Wilmar’s Environmental and Social Risk policies and their implementation, their compliance with the ING ESR Framework and their plans to support the best practices in the sector, like the RSPO certification. As a result, Wilmar achieved several good results. For example, Wilmar is the first large palm oil company that publicly disclosed names and locations of its suppliers in its palm oil supply chain in Malaysia and Indonesia (the sustainability section of Wilmar’s website), a major step in addressing deforestation.
We continue to monitor and remain in dialogue with Wilmar. Such a collaborative approach also allows ING and Wilmar to widen their perspectives and align sustainability objectives, leading to a deeper and more meaningful relationship with the aim to contribute to the betterment of the sector.”
Once we enter a business agreement with a client, we continuously monitor and evaluate whether they are complying with our policies. The process and governance model is explained in the images.
What does ING’s ESR team do?
- Create and maintain policies for sensitive industry sectors.
- Assess transactions for environmental and social risk.
- Monitor high-risk clients to ensure compliance with sustainability criteria.
- Spread ESR awareness throughout ING.
- Participate in European and global advisory groups (i.e. OECD advisory group, steering committee to the Equator Principles, Thun Group of Banks) to help bring all banks to the same high standard.
The outcome of the client assessment together with the outcome of the transaction assessment will determine the overall risk profile of the business engagement and the approval process thereafter (see table).