ING’s Terra approach

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Climate change is an enormous threat to our world, there’s no doubt about that. In the Paris Climate Agreement, governments committed to take action to remain well below a two-degree rise in global temperatures compared to pre-industrial levels. Now, everyone has a role to play to make that happen.

As a bank, ING makes the most impact through our financing, via the money we loan to companies and customers. We have a loan book of about €600 billion across many sectors, which we have now begun steering towards meeting the Paris Agreement’s two-degree goal. We call our strategy to get there the Terra approach.

How does ING’s Terra approach work?

ING will focus on the sectors in our loan book that are responsible for most greenhouse gas emissions: energy (oil & gas, renewables and conventional power), automotive, shipping & aviation, steel, cement, residential mortgages and commercial real estate. We will use a specific approach per sector in order to make the most impact, partnering with leading external climate measurement experts where it makes sense.

What approach is ING taking for our mortgage portfolio?

As almost half of our loan book consists of mortgages, we are taking action to make our mortgage portfolio energy-positive. This means that the homes in this portfolio will collectively produce more energy than they consume. To this end we are developing retail products, tools and services to help homeowners make their houses more sustainable. As houses generally account for about 20% of CO2 emissions, we believe this could have a meaningful impact in the fight against climate change. At the same time, it will help customers to lower their CO2 footprint and energy bill. We’re starting with our three biggest markets: the Netherlands, Germany and Belgium.

What other kind of methodology will ING use?

While ING’s Terra approach will make use of various methodologies, there is one that applies to most of the sectors in scope. This is the methodology ING co-created with the 2˚ Investing Initiative (2˚ii), a global think tank developing climate metrics in financial markets. It’s called the PACTA methodology for corporate lending. It looks at the technology shift that’s needed across certain sectors to slow global warming and then measures this against the actual technology clients are using – or plan on using in the future.

How does the PACTA methodology work?

Detailed technology roadmaps for each sector are being developed by independent organisations like the International Energy Agency. These are used as benchmarks. An IT tool compares the data from the sector roadmaps to data on the technology our clients are using today and planning on using in the future.

This client data comes from global databases that track public and private companies of various sizes around the world. This makes it easy for clients, as they aren’t required to provide any data themselves.

In the automotive sector, for example, we measure the current mix of our clients’ production of internal combustion engine vehicles compared to zero-emission vehicles and how clients plan to shift this balance over time. We can then compare this with what science-based transition pathways prescribe for the automotive sector in order to reach the below-two-degrees goal. The analysis doesn’t only tell us what needs to shift, but also how much and by when. This is where financing comes in – and ING can have an impact.

Why is this methodology so important?

We feel it can change the way banks think about climate impact measurement. Compared to other measurement approaches, this one is precise, tailored to each sector’s needs, forward-looking, and will ultimately have a bigger impact because it steers key sectors towards technologies that underpin a low-carbon future rather than only measure a carbon-rich past.

What’s the next step?

We are speaking with other banks and stakeholders, together with the 2˚ Investing Initiative, to explain the methodology. Most banks we speak to are positive about the methodology and recognise the significant progress ING is making. All banks would benefit from having an industry-wide standard, increasing transparency and therefore our collective effectiveness in fighting climate change.

For this reason, ING was joined by the global banks BBVA, BNP Paribas, Société Générale and Standard Chartered in signing the Katowice Commitment – a pledge to steer our portfolios toward the well-below two degree goal of the Paris Climate Agreement and work together to further refine the metrics and tools needed to do this.

What is the 2˚ Investing Initiative and why is ING working with them?

The 2˚Investing Initiative is the leading global think tank on developing climate and long-term risk metrics and related policy options in financial markets. 2°ii coordinates the world’s largest research projects on climate metrics in financial markets, with over 40 research partners in the public, private and philanthropic sector, and over millions re-granted to research partners to date. It’s backed by bodies including the European Commission and various European governments, and supported by academics, expert groups and civil society.

What else do we do on climate?

There are many ways we are working to combat climate change. For example, our commitment to reduce our coal exposure to close to zero by 2025, and the way our sustainability improvement loan rewards companies for their sustainability performance.

We’ve financed billions of euros of wind farms, solar energy, and geothermal power production. In fact, we aim to double our Climate Finance portfolio by 2022 compared to 2017. Read more on our approach to climate action.

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