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Wholesale Banking

ING sustainable debt leader: time to accentuate impact and accelerate transition finance

Ana Carolina Oliveira became the Head of Sustainable Finance – Americas for ING in June 2020. She has taken the helm at a time of explosive growth and innovation in sustainable debt markets. Here, she explains how this can be channeled to enable more companies to progress faster and further in their sustainability transitions.

Green climbing plant on brick wall

We’ve seen a whirlwind of change in sustainable finance recently, notably with more attention on sustainability-linked debt. What does it mean for the market?

It all started in 2017 when ING introduced sustainability metrics to the revolving credit facility of Philips, which became the first sustainability improvement loan in the market, as we like to call it. This structure became extremely popular, and then, fast forward to 2020, the International Capital Markets Association released its sustainability-linked bond (SLB) principles in June, expanding a similar concept to the bonds space. At that point, I think people were trying to understand where it fits alongside green and social bonds. They were almost asking, “should we choose between a traditional green bond or an SLB?”

The SLB market is still very nascent, but I think people are coming to the realization that it’s not really a matter of one or the other – and which is better – but it’s a complement to traditional use of proceeds instruments.

What I like about SLBs is that because the proceeds can be used for general corporate purposes, it allows more industries and different issuer types to take part in sustainable debt markets, whereas before they perhaps haven’t had the balance sheet to build a large enough pool of eligible projects for green bonds, which may have precluded them. So, I see that as a positive in making the market more inclusive.

I think what investors are saying is that “we like the principle, but we want to be sure the targets being embedded in SLBs are setting the right level of ambition for companies”. That’s where the KPIs come in, and if you get these right then it’s a win-win for companies and investors.

Some investors have been skeptical about the general use of proceeds approach—are they right to be?

As the SLB market progresses, we’ll start to see the same trends we’ve seen in the green bond space, where the level of investors’ expectations grows with the market, so issuers are being asked to go a step further—such as setting KPIs that include the impact of their supply chains as well as reducing their own footprint.

That has to be a broad discussion too, because there needs to be an understanding of what represents a meaningful target for different industries or different geographies, which can vary significantly. And, of course, companies need to be able to demonstrate progress against those KPIs with transparent disclosure of their incremental sustainability progress.

You’ve been increasingly involved in helping companies link sustainability KPIs to their financing—what’s the key to getting it right?

What we do as a bank is first help clients to identify the most critical aspects of sustainability for their strategy. That means selecting those issues which are most material to their sector and being prepared to benchmark themselves against competitors and industry standards. And then they need to decide how ambitious they’re going to be; whether they plan to align with peers or aim higher.

Based on their starting point, we’ll advise them on the best pathways to reach those targets and put in place a clear roadmap to get there.

You can then start thinking about the most appropriate financing instruments and structures to use. That’s where you need the finance, sustainability and strategy teams working together, because you need to understand what fits into your capital structure within a specific timeframe, and how it will support the acceleration of credible sustainability targets.