Marieke’s eye on the Economy: the bankability of sustainability

Let’s revisit the economic basics: sustainability is not something that markets can solve alone. The price of oil and virgin plastics remains low, while recycling and upcycling remain expensive. As societies become wealthier, pollution tends to increase without intervention. Sustainability is rife with classic cases of market failure.

Building a business case for sustainable solutions therefore demands government involvement. However, governments are currently struggling for a variety of reasons.

1. The transition to a sustainable economy is highly complex, requiring coordinated action across regulation, taxation, infrastructure, and subsidies. For example, the uptake of electric vehicles depends not just on the cars themselves, but also on grid capacity and charging infrastructure.
2. Political agendas are crowded with competing priorities, from geopolitical tensions to domestic unrest, which often pull in opposite directions. Political instability further complicates matters, turning long-term plans into short-term broken promises.
3. This transition also creates losers – industries, regions, and workers who bear negative impacts, such as the German automotive sector. These challenges come at a time of high uncertainty and slow economic growth. In Europe, for instance, discussions continue around Opens in a new tabthe 2035 target for banning combustion engines.

As a result, Europe Opens in a new tabis scaling back some reporting and due diligence requirements. Opens in a new tabRegional differences are emerging: sustainable finance is gaining momentum in the Asia Pacific region, stagnating in Europe, and retreating in the US, where tax credits on wind, solar, and electric vehicles are being reduced too. 

Despite these headwinds, the sustainability transition is far from stalled. Several powerful forces are sustaining its momentum.

1. Technological tipping points, such as the rise of electric vehicles and the increased competitiveness of wind and solar, are reshaping industries. Opens in a new tabWe firmly believe the future of cars is electric.
2. Energy independence has become a strategic priority for China and Europe amid ongoing geopolitical manoeuvring. Even in the US, renewable energy is essential for powering advances like artificial intelligence.
3. As planetary boundaries are breached, public awareness is growing. A significant majority of Europeans Opens in a new tab(67%) want their government to do more to combat climate change.

There is much to be optimistic about: many policies have already been enacted, reporting and sustainable finance standards are in place, and citizens, companies, and banks have invested in new technologies. These groups are now likely to resist any dilution of regulations. 

At ING, colleagues from across the business, including ING Research, Opens in a new tabare partnering with stakeholders to drive collective action. As I often remind my girls: we have made significant progress, but much remains to be done. Let’s keep moving!