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 €700 billion across many sectors, which we have begun steering towards meeting the Paris Agreement’s climate goals. We call our strategy to get there the Terra approach.

How does ING’s Terra approach work?

ING is focusing on the sectors in our loan book that are responsible for most greenhouse gas emissions: power generation, fossil fuels, automotive, shipping, aviation, steel, cement, residential mortgages and commercial real estate. We are measuring whether our lending in each sector is adding up to contribute to the Paris climate goals. We’re able to do this because we co-created an innovative, accurate way to measure the climate impact of our portfolio. Per sector, we use the most appropriate methodology available, acknowledging that there are more ways to Paris and in the end it’s the impact that counts.

What kind of methodology does ING use?

While ING’s Terra approach makes 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 (2DII), a global think tank developing climate metrics in financial markets. It’s called PACTA for Banks. 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-degree 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 where ING can have an impact.

PACTA for Banks was published in September as an open-source tool, then ING and four other banks published our blueprint for how we will put it into practice.

Why is this methodology so important?

We feel it can change the way banks think about climate impact measurement, target setting and steering. Compared to other methodologies, 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.

Where does ING’s portfolio stand according to climate alignment measurement?

We released our second Terra progress report (PDF 11.4 MB) in October 2020. It details our progress and targets on climate alignment in the nine sectors most responsible for climate change.

For five of the sectors (automotive, power generation, residential real estate, commercial real estate, and cement) our current performance is outlined compared to last year’s performance. This year we also disclosed our climate alignment for the sectors fossil fuels, aviation, steel and shipping.

With this, we fulfil our commitment to cover all nine sectors in scope by the 2020 report, including quantitative results and targets. The report’s Climate Alignment Dashboard shows that the nine sectors are mostly on track for climate alignment, with progress still needed in some.

For example, the portfolios power generation, shipping, cement and steel are ‘on track’ for climate alignment, while residential real estate, automotive and aviation are ‘close to being on track’. See the report for more details.

What are the next steps?

We now know where we are and where we should be heading. We’ve set targets and timelines, and we’ve started steering by engaging with our clients and making choices in financing. This milestone marks a new phase in our journey. We’re not there yet. But we’ve definitely moved beyond commitments and are living up to our promise to take action and transparently deliver results. We will continue to monitor and report on our progress.

How do we get other banks involved?

We’ve been speaking with other banks and stakeholders, building partnerships and coalitions that are bigger than just us. We believe 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 in December 2018 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.

In September 2019, the Katowice Commitment formed the groundwork for the UN-backed Collective Commitment to Climate Action, signed by ING and 30 other banks that together represent $13 trillion in loans.

PACTA for Banks, the open-source methodology we co-created with 2DII, was released in September. Then ING and the four other Katowice banks published our blueprint for how we will put the tool into practice.

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. Read more on our approach to climate action.

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

The 2˚Investing Initiative (2DII) is the leading global think tank on developing climate and long-term risk metrics and related policy options in financial markets. 2DII 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.

Want to get involved?

Contact us at sustainability@ing.com

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