The climate crisis is real: more greenhouse gases are in our atmosphere than ever before in human history, sea levels are rising at their fastest rate in 2,000 years, ice sheets are shrinking and temperatures are breaking records around the world. This is happening because we, humans, have been enjoying a convenient life for a while now, and especially since the mid-20th century.
But this comes at a price, and carrying on ‘business as usual’ isn’t an option.
To this end, there is a plan to keep global temperatures from rising too much. It’s the result of nearly 200 countries getting together in 2015 to come to consensus on tackling climate change for the first time in history. Known as the Paris climate agreement, its goal is to keep the rise of global temperatures to well below two degrees Celsius. This plan, however, is going to cost a ton of money – we’re talking trillions of euros. That’s where banks come in.
The Terra approach
Because we make the most impact with our financing – the money we loan to companies, ING will steer its portfolio towards the well below two-degree goal. We’re able to do this because we co-created an innovative measurement approach called Terra with the 2˚ Investing Initiative (2˚ii), a global think tank for researching climate-related metrics in financial markets.
“Banks have a responsibility to finance positive change and we are stepping up to that. We believe the Terra approach will enable us to make a real difference. There is no time to lose,“ says Isabel Fernandez, head of ING Wholesale Banking.
How does Terra work?
What’s unique about Terra is that it won’t only tell us what technology needs to shift in which sectors, but how much and by when. It looks at the technology shift that’s needed across the sectors that are most responsible for greenhouse gas emissions, the main cause of rising temperatures globally.
In the automotive sector, for example, it’s not enough to lower emissions by making fewer petrol-powered cars; more electric cars must be produced too.
Terra measures the needed shift in technology against the actual technology that clients are using today, and are planning to use in the future.
“That’s what makes Terra an inclusive approach. It’s not about how to exclude clients' or portfolios. It’s about helping clients transition to a low-carbon economy,” says Léon Wijnands, head of Sustainability at ING.
Terra focuses on the sectors where the most greenhouse gas emissions come from: energy (including oil, gas, renewables and conventional power), automotive, shipping and aviation, steel, cement, residential mortgages and commercial real estate. The information on what technology changes are needed and by when is given in detailed scenarios per sector made by independent organisations like the International Energy Agency.
What, how much, by when?
Terra will also allow us to identify those clients who are leading the transition to a low-carbon economy as well as those that need ING’s help the most. It’ll show us whether our lending is adding up, portfolio by portfolio, to contribute to climate resilience or not.
This means that we focus on investments and divestments that are needed by our clients and potential clients, rather than only changing our portfolio.
The Terra approach complements the other 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.
Open to other banks
The Terra approach will be open source to encourage the development of a banking industry standard.
Our implementation of Terra started this quarter by assessing the target sectors in our portfolio. We’ll report on our progress in our Annual Report.
“We are delighted that a multinational bank like ING helped us pioneer this methodology for financial service providers,” says Jakob Thomä, managing director of 2˚ii.
“The methodology – and its resulting two-degree aligned portfolios – will be an important contributor to combating climate change. We hope other banks will follow suit and adopt it as well.”