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Wholesale Banking

ING marks five-year anniversary of pioneering sustainability-linked financing

Sustainability-linked finance deals have become so commonplace in recent years that, on the face of it, there’s nothing remarkable about them anymore. And that’s perhaps the greatest measure of success you could want for this financial innovation that was launched by ING five years ago.

That original transaction, a €1 billion revolving credit facility provided by a syndicate of 16 banks, was a major financial innovation and launched an entirely new financial product on the market. It linked the interest rate of the revolving facility to Philips’ environmental, social and governance (ESG) performance, as measured by sustainability rating agency Sustainalytics. The higher the rating, the lower the interest rate and vice versa.

The sustainability link meant this new financing form went beyond the concept of green financing as it applied until that time.  The former focus on purely environmental use of proceeds now became a focus on the borrower’s whole sustainability profile: social and governance elements became just as important as the environmental aspect.

In the years since 2017, sustainability-linked financing has evolved even further. Deals are now more and more based on achieving KPIs that align with companies’ own sustainability strategies. In a recent repeat transaction for Philips, ING acted as sustainability coordinator, arranging a syndicated sustainability-linked loan (SLL) with ambitious KPIs aligned with Philips’ sustainability goals for lives improved, lives improved in underserved communities, circular revenues, and operational carbon footprint.

Other recent noteworthy deals based on KPIs involving ING included one for FrieslandCampina, the world’s largest dairy cooperative, which committed to reducing the greenhouse gas emissions of its member farms and making it easier to trace raw materials such as palm oil and cocoa. And the then  largest-ever sustainability-linked loan, a $10.1 billion revolving credit facility for brewer AB InBev, in which ING had a leading role as joint sustainability coordinator. The five-year loan, also the first of its kind in its sector, has a built-in pricing mechanism that incentivises the company to improve its water efficiency, recycle more PET packaging, use more renewable electricity and reduce its greenhouse gas emissions.


Roland Mees, director of Sustainable Finance at ING, spent two years developing the sustainability-linked loan concept and laying the foundations for that first ground-breaking transaction with Philips.

“The evolution of the market has been nothing short of amazing,“ says Roland. “Not only are the growth figures impressive, but also the broadening of the sustainability-linked financing concept to now include bonds, interest rate swaps, supply chain finance. It has really become a movement.”

Roland says the success and impact of the product lies for a large part in how it addresses a fundamental mechanism of human psychology. “When I first started working on concepts around how finance could foster sustainable change, one of the first obstacles I identified was getting the various parties to such a transaction to understand what was in it for them. I came to understand that beyond doing the right thing for the planet and society, people needed an extra incentive to really make this work.” In particular, they needed to understand how a sustainable approach to business reduces a company’s risk profile.  And that it was sound business sense for companies to make their operations more sustainable and for banks to offer a modest discount in the interest rate to encourage them to do so.

“It didn’t take a lot of convincing for banks and the companies they finance to see the rationale behind this. This kind of incentive appealed to them intuitively,” says Roland. At the same time, he doesn’t see sustainability-linked loans as a main driver of change. “We also need reasons to justify action, like adhering to the Paris accords. But SLLs can accelerate change by providing a motive and incentive to do the right thing.”

The success of SLLs isn’t just measured by the growth of the market but also by how it has matured in these few short years, says Roland. One example are the Sustainability Linked Loan Principles (SLLPs) drawn up by leading financial institutions active in global syndication, as represented by the Loan Markets Association (LMA). The principles provide guidelines that define the fundamental characteristics of SLLs in order to ensure the integrity of the product and to promote sustainable development more generally.

Thought leadership

As the pioneer of sustainability-linked finance, ING continues to contribute as a thought leader to its development. With the strong growth of the market for SLLs, calls have come to safeguard the integrity of this new form of finance by better defining the criteria a loan should meet to be considered sustainability linked. In a 2021 position paper on the subject, ING advocated for business-related sustainability targets to become the standard, rather than charitable contributions, for example.

The paper argued for sustainability targets linked to financing to be ambitious, recognised industry-wide and verified by a reputable, independent party. ING believes this approach will protect the credibility of the market and make sure companies tackle the most difficult and urgent issues first. If the ambition levels are too low, sustainability-linked products won’t have the impact they’re designed for.

Related to its thought leadership in the area of sustainability-linked financing, ING is also a member of the EU's Platform on Sustainable Finance. The platform is a forum for cooperation among a wide range of public and private sector stakeholders in support of the aims of the European Green Deal, with the overarching goal of making the European Union climate neutral by 2050. An important part of that is the EU taxonomy classification system, which seeks to counter greenwashing by defining the criteria for investments to be considered environmentally sustainable.

“The taxonomy is an important prerequisite so companies and investors are clear about what constitutes sustainable activity,” says Roland. “That will promote the development of the market for SLLs and other forms of green financing. And that’s a key part of being able to achieve the EU Green Deal goals.”