Sustainability, a business opportunity for banks
A new trend is emerging in the banking world, as more financial institutions look to integrate sustainability into their business strategies. How do they do this? ING explained its approach recently at the United Nations Environment Programme’s World Investment Forum in Geneva.
“Many banks still see sustainability as something they do in response to pressure from NGOs or to mitigate harm. We want to change the focus to how it can be a tool for the financial sector to make a positive impact,” explains Leonie Schreve, head of sustainable lending at ING. “And we want to inspire other financial sector players to do the same. There was a very positive reaction at the meeting to the idea that sustainability is a business opportunity rather than something you do on the side.”
Leonie Schreve, global head Sustainable Lending at ING, is responsible to drive and promote sustainable business opportunities within the mainstream global lending portfolio of the bank. Till 2013, she acted as Chair of the Equator Principles Steering Committee.
“Many institutions want to do something but don’t know how to. We started looking at this in 2012 and UNEP has highlighted our approach as one that other financial institutions could adopt,” she adds.
The main challenge for lenders is a lack of knowledge about how to change their organisations and how to select the right businesses to invest in.
The first steps are to define what sustainability means to your organisation, to measure where you are currently, work out where you want to go and how you are going to implement a strategy to get you there.
“In Geneva, I talked about how ING has worked to move its portfolio to sustainable business opportunities,” Schreve says. “Our focus is to encourage a positive approach. The world is changing and certain issues - such as climate change and resource scarcity are becoming more important. We strongly believe that sustainable business is better business, but if you do not integrate this philosophy into your entire business it will never become mainstream. With our approach, we know that everyone is stimulated to look for sustainability opportunities.”
'We have recently noticed a significant increase in clients wanting to talk to us about how to deal with sustainability challenges.'
However, there are some key lessons that ING has learnt. Firstly, sustainable business must be financially viable not just nice to do, otherwise you will be unable to sustain your own business.
And you must always remember that banking is still an exercise in lending consumers’ savings to the real economy so you cannot gamble with that money. As a result, Schreve says: “We don’t invest in sectors that do not have proven technology. On the other hand, we don’t want to have a 15-year exposure to an unsustainable industry that may not be around in 10 years’ time because of regulation or social pressures.”
One reason ING has changed is that many of its clients are integrating sustainability into their own operations. “We have recently noticed a significant increase in clients wanting to talk to us about how to deal with sustainability challenges, in sectors ranging from shipping to real estate,” Schreve points out.
ING’s sustainability profile has helped it to win new types of business. One client wanted it to build a syndicate of sustainable banks for a deal, while others are changing their business models by, for example, taking a circular economy approach where they no longer sell products but services – so a lighting company would no longer sell light bulbs but light hours.
And just as clients are starting to judge the bank on how sustainable it is, ING recognises customers that have taken a pro-active approach with its Green Leaf label, a certification standard for deals that make a significant contribution to sustainability. This applies to clean energy and efficiency transactions. The first deal to earn the Green Leaf was a €1.2 billion financing of the 80-turbine Butendiek wind farm in the North Sea.
But deals in specific sectors are not enough to create a critical mass for the sustainability agenda, so the Green Leaf can also be awarded in sectors that are traditionally not thought of as sustainable, if the project or company is using best practice in that particular industry. In the oil and gas sector, for example, the bank financed a pipeline project where all the waste products were recycled, something that was not done before.
ING is the highest scoring company in the ‘Diversified financials’ category of the Dow Jones Sustainability Indices annual review for 2014. ING scored 82 out of 100.
“We want more companies in our portfolio that are doing these things,” Schreve asserts. “Why? Because it is good business. We know that resource-efficient companies produce 33% higher returns than their less resource-efficient rivals, display high levels of innovation and entrepreneurship, and are aware of the economic imperatives produced by resource constraints.”
Through UNEP, ING will be leading a workstream where it will help others to develop a similar approach. “We want sustainability to become the business as usual approach,” Schreve concludes.