Climate change is the greatest challenge of this century. But society risks failing to address it if it continues to pass responsibility to future generations by only focusing on short-term issues. We ask Roland Mees, director of sustainable finance at ING, how we can expand our horizons.
Why do we tend to focus on short-term issues?
The way people experience space, time, and the very concept of sustainability restricts progress and risks diminishing the urgency needed to act. Our experience as human beings seems to be limited: we experience our homes, we experience our offices… there’s some sort of circle around our awareness. And that can limit our experience of what is beyond that horizon.
The second one is time. We have limited awareness of what’s to come in the future and what has been in the past. If you nail it down, experience is restricted to our homes and our immediate family between now and the next 48 hours. That’s extremely restricted, and it’s hampering us in how we face the sustainability challenge.
Also, our theories, our way of thinking about the sustainability challenge, is very much framed and influenced by classical economic thinking. For example, discounted cash flow is a dominant concept in judging business cases. And although that concept doesn’t need to be changed immediately, we have to include, for example, externalities, like the carbon price in our business cases.
How do we expand our circle of awareness – whether a business or an individual – to promote sustainable action?
There are very concrete steps to take. Firstly, information. Let those who are considered authorities, or role models in their societies, inform the public about sustainability.
The second way of promoting sustainable action is nudging. We can make a small push in the right direction by nudging ourselves, or one other. As a business, ING initiated sustainability-linked loans, where rates are linked to a client’s sustainability performance. This is an example of a nudge. It’s a small push for companies to act sustainably, but it helps.
And let’s not forget education. Parents and teachers are extremely important when it comes to teaching children sustainable behaviours. It starts with showing consequences, like, for example, how more enjoyable it is to use a bike instead of a car. All these things can be taught and should be taught.
Tell us a bit more about sustainable loans at ING.
The market’s skyrocketed in the past five years. To protect the integrity of this fast-growing market, which we pioneered back in 2017, ING published a position paper in October 2021 calling for linked sustainability targets to be ambitious, recognised industry-wide, and verified by a reputable, independent party. This will help to retain the credibility of the market by making sure companies tackle the most difficult and urgent climate issues first. Ambition levels that are too low will not make the impact these products are designed for.
We’re pleased to say that in 2021, we supported 147 sustainability-linked loans. These included several firsts in their sector or industry, cementing our position as a sustainability-linked pioneer.
How are regulations bringing more accountability to the market?
There’s been a rollout of regulations in the market in recent years – one effect of this is that it has boosted transparency between lenders and companies. To transition to a sustainable future, we don’t only need individual citizens like you and me to change our behaviour, but for businesses to take forward action by, for example, structuring sustainability-linked loans. And then to overcome the ‘motivational difficulties’, to nudge or to inform, to educate and to regulate, governments must come up with plans, and put them through rigorous democratic processes. Then these need to be carried out.
What message would you give to encourage people and businesses to bring about change?
Act now. Don’t wait. Don’t do the reverse hockey-stick approach of postponing all the difficult issues to the future. Take the most difficult issues first, solve them now, and perhaps leave some easy stuff for later. But the most difficult topics have to be tackled in this decade.
The United Nations declared 2020-2030 the decade of action. Within this decade, we must do the most significant things. The plans are there, the goals are there – in the European Union at least. We’ve talked, we’ve contemplated, and now it’s really time to act.
Adapted from a podcast produced by Longitude, a Financial Times company, in partnership with ING.