Banks must have more strategic dialogue with their clients to help them identify investments and divestments to safeguard their resilience in the future economy.
By 2050, the global population is set to reach almost 10 billion people, bringing with it unprecedented energy consumption. This will be an existential challenge unless businesses can pioneer new technologies and business models that minimise emissions of greenhouse gases.
There is plenty of incentive for them to do so. Regulatory pressure means they will have to substitute polluting systems with greener ones, while clean technology and business model innovations themselves, such as batteries for electric vehicles, wind energy and circular economy systems, offer companies the best solutions to meet their sustainability goals.
But many will feel there is an inevitable risk in shifting away from business models and systems that they have relied on for decades.
Banks and businesses work together at a strategic level
Banks can step up here – they can provide more risk-bearing capital to clients, as well as practical advice about how to reconfigure themselves to be more sustainable.
This is where ING is currently focusing on being a partner to its clients, by establishing a strategic dialogue to help them identify investments and divestments to safeguard their resilience in tomorrow’s economy.
Strategic discussions can go a long way in supporting clients to scale up promising technologies or systems. Take the use of blue or green hydrogen as a low-carbon alternative and a way to decarbonise industrial processes. Investment into projects along the entire hydrogen value chain is estimated to be $500 billion by 2030.
But clean hydrogen remains expensive, which means it is not yet competitive. Despite this, Gido van Graas, global lead New Energy Technologies at ING, says “hydrogen could, next to wind and solar, have the biggest impact on the energy transition” as “global CO2 emissions can be eliminated” by scaling up its use.
“The implementation of hydrogen in the coming decades will require trillions of dollars of investment not only in production facilities, but also in transportation and storage,” he says. “We are very keen to support our client base in their energy transition here.”
ING was recently appointed as financial advisor to take the lead in securing project financing for Clean Energy Holdings’ 250 MW Clear Fork renewable energy-supplied green hydrogen and liquefaction project in Texas. As one of the largest and leading green hydrogen developments in North America, the project has a baseline schedule slated to enter commercial operations in the third quarter of 2024.
Banks are financing innovation
One way for banks to support their clients, of course, is with finance, and they are increasingly using it to support innovative green businesses.
ING is an innovator in green financing: in July 2022, it marked five years of pioneering sustainability-linked financing, which has evolved significantly since 2017. Deals are now more and more based on achieving KPIs that align with companies’ own sustainability strategies. In a recent transaction for Philips – a repeat of the first sustainability-linked finance deal that put ING on the map – 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.
Progress through collaboration
ING continues to collaborate with others to develop roadmaps and methodologies, including for hard-to-abate sectors. In May 2022, it joined forces with five other banks active in lending to the steel sector to define common standards for measuring progress in decarbonising steelmaking. The sector emits roughly 7% of global CO2 emissions and is heavily dependent on coal, but currently has no commercially viable alternatives.
Chaired by ING, the Steel Climate-Aligned Finance Working Group is part of the Net-Zero Steel Initiative and seeks to create a credible and widely acceptable pathway to net-zero steelmaking by 2050. Its progress will eventually be incorporated into our Terra approach. ING is also active in initiatives to decarbonise maritime shipping, another carbon-heavy sector with limited new technology alternatives at present.
In early 2022, ING became a shareholder in EIT InnoEnergy, the European innovation engine for sustainable energy that supports start-ups, commercially attractive technologies and provides education. ING was the first financial institution to become a shareholder, following other companies actively involved in the energy transition, such as Volkswagen, TotalEnergies, Naturgy, and EDF.
Be it hydrogen, battery technologies, recycling improvements, or a myriad of other sustainability innovations, these developments very much depend on banks and companies working together towards a greener future.
This article has been updated and adapted from ING-FT custom content