ING reveals 2°C scenario analysis method for corporate lending portfolios

ING announced that it will start steering its €500 billion lending portfolio towards meeting the climate goals of the Paris Agreement after developing a cutting-edge, precise method to do this with the 2˚ Investing Initiative (2˚ii). The Paris Agreement aims to keep global warming as a result of climate change to two degrees Celsius or below.

ING had been working for several years to figure out the best way to measure the climate impact of its lending portfolio. After piloting a financed-emissions approach that ultimately could not be used, ING sought alternative methods for measuring and steering.

In early 2018, ING partnered with 2˚ii to extend the initiative’s existing 2°C scenario analysis framework for equity and bond portfolios– the so-called Paris Agreement Capital Transition Assessment or PACTA tool – to corporate lending portfolios. As a result, 2˚ii and ING have together taken the lead and successfully developed a methodology that could become the standard for how international banks set science-based targets. ING calls this the Terra approach.

“We are delighted that a multinational bank such as ING helped us pioneer this methodology for financial service providers,” said Jakob Thomä, managing director of 2˚ii. “The methodology – and its resulting 2˚C-aligned portfolios – will be an important contributor to combating climate change. We hope other banks will follow suit and adopt it as well.”

Compared to other measurement approaches, this science-based approach could ultimately have a significant impact because it enables banks to direct their money towards financing technologies that support a low-carbon future instead of those that only measure a carbon-rich past.

The approach focuses on the sectors that produce the most greenhouse gas emissions. It also concentrates on the technology changes that companies in those sectors need to make in order to be aligned with the climate goals of the Paris Agreement. For example, it is not enough for automotive companies to lower emissions by producing fewer petrol-powered cars – they have to manufacture more electric cars too.

“Banks have a responsibility to finance change and we are stepping up to that,” said Isabel Fernandez, head of ING Wholesale Banking, who will announce the Terra approach in her speech at the Global Climate Action Summit in San Francisco today. “We believe the Terra approach will enable us to make a real difference.”

Like the PACTA tool, the Terra approach is open-source. ING is collaborating with other banks and stakeholders to encourage them to also work with this methodology.

“All banks will benefit from having an industry-wide standard, greater transparency on their alignment with the climate goals of the Paris Agreement and, as a result, collective effectiveness in fighting climate change,” added Fernandez.

For more information, watch the ING video.