Terra approach
As a bank, one of the main ways ING can impact climate action is through our financing. We aim to steer the most carbon-intensive parts of our portfolio towards reaching net zero by 2050. We combine a portfolio-level approach (called Terra) to the carbon-intensive sectors we’re active in with data-driven client engagement that strives to support companies in accelerating their own net-zero transitions.
With Terra, we measure the emissions associated with clients active in the most carbon-intensive parts of the sector value chains, and use this information to benchmark our clients’ activities against the relevant science-based decarbonisation scenarios. Additionally, by measuring the absolute financed emissions of our portfolio, we perform hotspot analyses to monitor our loan book, identify risks and opportunities, and define next steps for expansion of Terra's scope.
In order to create impact we focus on the most carbon-intensive sectors we finance. The methodologies we use concentrate on the part of the value chain which accounts for the bulk of the impact on the climate system, and on which decarbonisation efforts must be concentrated to spur the entire sector to fall into alignment. The specific boundaries of the activities that we cover per sector are defined by the methodologies adopted and the available scientific scenarios. Focusing on these specific sectors and the specific parts of their respective value chains means that we concentrate our efforts on supporting our most carbon-intensive clients in their transitions.
Within Terra, we apply what we consider to be the best-fit methodology per sector to measure and steer our loan book. The (sub)sectors we currently focus on are: power generation, upstream oil & gas, mid- and downstream oil & gas, automotive, shipping, aviation, steel, cement, aluminium, dairy, residential real estate and commercial real estate. We’re working to include additional carbon-intensive sectors and more parts of existing sectors in order to increase impact.
Our progress
Our Climate Progress Update details our progress and targets on climate alignment in the 12 in-scope (sub) sectors in our loan book.
The Climate Progress Update shows that four sectors (power generation, upstream oil & gas, automotive and shipping) are on track to meet climate goals on time. Four sectors are almost on track (cement, mid- and downstream oil & gas, aluminium and commercial real estate); two sectors are not on track (steel, residential real estate) and two can’t be reported yet because we only recently started to measure (aviation, dairy).
For some sectors in scope, we foresee challenges with bringing our portfolios into alignment with the relevant science-based pathways. These challenges range from the long lead-time in scaling new technology solutions in sectors like cement and steel, to the lack of mainstream low-carbon fuel alternatives in aviation and shipping, to insufficient government guidance and incentives to influence customer behaviour in residential real estate. These challenges would be greatly reduced by concerted action by industries, governments and regulators (see governments below).
We have continued to broaden our climate alignment approach, aiming to increase our impact. For example:
- Following COP28, we announced in December 2023 that we would be phasing out the financing of upstream oil & gas to zero by 2040. For midstream and downstream, which refers to oil and gas processing, (pipeline) transport, storage, handling, liquefaction and refining, we have emissions intensity targets to steer on our long-term net-zero-by-2050 goals. And we've also now announced that we've expanded our policy to stop all new general financing to pure-play upstream oil & gas companies that continue to develop new fields. We've also decided to stop new financing for new LNG export terminals after 2025.
- We partnered with RMI, other leading banks and aluminium industry stakeholders to develop the Sustainable Aluminum Finance Framework (SAFF), the first climate-aligned finance framework for the aluminium sector – also one of the sectors in the NZBA. SAFF is designed to enable banks to measure and disclose their lending portfolios’ aluminium-related emissions, and help them align financing decisions with their net-zero goals.
- We've also been exploring setting targets in areas such as Food & Agriculture, and based on our initial assessment, are for now focusing on the dairy sector. This is a unique collaboration within our bank where Wholesale Banking (whose clients are large corporates) and Business Banking (whose clients are small and medium-sized farmers) steer on the emissions of dairy farming from both ends: from the dairy farming as well as the supply chain of the processing. We see this as an interesting approach to build on further.
- We're working on a methodology for setting targets on the facilitated emissions associated with our capital markets activities.
- With other banks, we’re developing a greenhouse gas (GHG) accounting methodology and targets for our trade & commodity financing related to the oil & gas sector.
- Client engagement is at the forefront of our climate alignment work, and we've improved and refined how we engage with our clients in their journeys along the path to net zero. A key development here is the work we have done on collecting publicly disclosed data on the transition plans of clients and using our insights to more deeply engage with clients in strategic discussions about their transition strategies – see page 18 of the Climate Progress Update 2024.
Methodologies
ING’s Terra approach makes use of various methodologies. We co-created Terra in 2018 with the 2˚ Investing Initiative (2DII), a global think tank developing climate metrics in financial markets. At that point in time, the main methodology used to set targets was the Paris Agreement Capital Transition Assessment (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.
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 net-zero by 2050 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.
After launching the first Terra report using the PACTA methodology in 2021, we've continued to improve and expand Terra in collaboration with 2DII, also involving new partners like RMI's Center for Climate Aligned Finance (CCAF) (see Collaboration below). Improvements include expanding the geographies covered, bringing more sectors into scope, and adding more parts of the value chains within sectors.
At the moment, we cover 12 subsectors within Terra using various methodologies – please see the Annex of our Climate Progress Update for more information on all these methodologies.
One of the key challenges in our Terra steering work continues to be that of data management and access to good quality data, specifically in a sector like residential real estate. For this reason, it is important to stay close to data vendors, and do our quality controls when we receive data. We continue to prioritise this area, working to make progress on our risk and control framework, and how we interact with data vendors.
Collaboration
Collaboration and partnerships are essential parts of our approach to climate action, as no sector or company can solve the world’s problems alone.
We joined RMI's Center for Climate-Aligned Finance as a strategic partner in July 2022. Together with other financiers, we work to establish measurement methodologies, emissions data and reporting frameworks, and governance structures, which are necessary for financial institutions to support the transition to net-zero emissions.
Building on our involvement as a founding signatory of the Poseidon Principles for the shipping sector, we led a working group to design a climate-aligned finance agreement for steel, and we're proud to be one of six banks that are founding signatories of the Sustainable STEEL Principles. This will help banks measure and report the emissions associated with their steel loan portfolios compared to net-zero emissions pathways. We also had a lead role in the climate alignment working group for aluminium and helped develop the Sustainable Aluminum Finance Framework at the end of 2023.
See more info in 'How we engage'.
Policy makers
While we accept the important role we have to play in financing and facilitating our clients’ transition to net zero, a massive joint effort is required for the world to actually reach net zero by 2050. We call on governments to direct and guide the changes needed to reach net zero by 2050, whether by regulation, policy or incentives. You can see more info on our specific calls for action to governments and policy makers in our Summary for policy makers – Climate Progress Update 2024.
