Towards Sustainable Finance Brussels 18 January 2018
The clear need for sustainable financing Environmental challenges require businesses to act Climate change Resource scarcity Water distress It takes communities, cities, states, industry, business and everyday people By 2050, the global population is expected to reach 9 billion If no changes are made, Melting of ice and the rising of the seas results in flooding and erosion of coastal and low lying areas. Extreme weather causing floods and decreasing water quality. Globally effecting all regions, both rural and urban. Introducing risks for human health, society, economy and wildlife. Current resource consumption compared to the earth s regenerative capacity differs by region 1,5x 2,5x 4x Projected 2% annual demand growth for freshwater will lead to serious constraints. One out of two countries is prone to water stress. Flood-prone zones need better protection. to transform high-level decisions into real-world action. Patricia Espinosa, UNFCCC Executive Secretary, COP23 increasing pressure not only on Earth s natural resources, but also on many of the world s most environmentally sensitive regions WWF, 2017 global water demand is forecasted to outpace the sustainable water supply in 2040 by 35%.. ING, 2017 1
Addressing climate change ING's climate change efforts in practice COP 21: Agreement to keeping global warming below 1.5ºC Insert filepath here ING ends new coal financing and continues to reduce the coal portfolio. Long-term global goal to keep temperature rises below 1.5 C Pledges to curb emissions and 5-yearly revision mechanism Carbon markets and monitoring emissions Support for developing country to reduce pollution Loss and damage associated with climaterelated disasters ING commits to renewable electricity for all buildings worldwide and is carbon neutral since 2007. Outcomes & Challenges ING issued its first green bond in 2015 and is growing its sustainable business. Transparency in emissions Carbon pricing Financing renewables and energy efficiency Reducing Emissions from Deforestation and forest Degradation Green Climate Fund for adaptation measures in developing countries ING selects clients on sustainability criteria. ING has made a commitment to go 100% renewable, joining the RE100 initiative Takeaways from COP 21 The sense of urgency exists as there is no discussion anymore about if we should do something about climate change. Private sector needs to step in and is becoming carbon neutral, investing in low-carbon technologies and developing new business models (e.g. circular). Climate change provides a business opportunity as an estimated $ US 6tr of investments in a green and resilient economy is needed every year until 2030. The potential upside of redirecting capital towards more sustainable projects and clients is huge. 2
Diverse Sustainable Finance Solution Offering With our strong sustainability track record, ING is the preferred partner to support our clients to strengthen their sustainability profile In depth sustainability expertise on green finance, sector developments and innovation enables ING to support clients to be a step ahead Sustainability Improvement Loan Green Loan Green and Social Bonds Circular Product as a Service (PaaS) This loan for general corporate purposes links the interest margin to the improvement of the client s external ESG score A Green Loan is a corporate loan where the use of proceeds is linked specifically to sustainable projects, green product development or a green project portfolio of the client Debt capital markets instruments (bond, Schuldschein, securitization), of which the proceeds are used to finance green or social projects and defined in a green bond framework Product as a Service is the most challenging and impactful business model in the Circular Economy. ING offers innovative financing solutions to transition from take, make and dispose to reduce, reuse and recycle and new sustainable business models Sustainable Trade Receivables Purchasing Programme (TRPP) Sustainable Supply Chain Finance Sustainable Investment Green Lending Comparable to the Green Loan, the pre-financed liquidity under a TRPP can be allocated to financing specific sustainable projects or a green project portfolio To strengthen the supplier base of our clients we offer sustainable suppliers benefits under our supply chain finance program Innovations in Sustainability can encouter financing challenges. Risk bearing capital dedicated to Enery Transition, Ciruclar Economy and Water, supports in scale-up opportunities Asset based lending (project finance) on non-recourse basis and with known use of proceeds to finance the construction, development and operation of sustainable projects such as windfarms, solar and water projects 3
US$800m 500m Green Bond ING's green bond First green bond issued in November 2015, won two awards in May 2016 Ambitions Green bond details Eligible categories Awards Insert filepath here Align sustainable asset base with green funding sources. Support growth of green assets by allocating 20% of the proceeds to new asset production The green bond s main distinctive feature are the six eligible categories, emphasising ING's broad sustainable profile. Final bond size reached 500m and US $ 800m after significant oversubscription. 20% of the orders came from new green focused accounts Strong interest from SRI-focused investors resulted in favourable pricing compared to conventional bonds. Green investors got allocated significant portions of both tranches. Ultimately, the issued green bond allowed pricing below conventional senior bond offering 1 2 3 Renewable energy Green buildings Public transport Wind power (onshore and offshore) Solar power Hydro power(small run of river projects) Geothermal power BREEAM minimum Very Good LEED minimum Gold DGNB minimum Silver HQL minimum Excellent Public transport vehicles production Public transport infrastructure Bond of the Year (Bank) Biggest Issuer (Bank) (Environmental Finance, 2016) Netherlands 11/15 ING Bank NV EUR 500m 0.750% Green Bond due Nov 2020 US$ 800m 2.000% Green Bond due Nov 2018 Investor analysis 20% 30% 4 5 Waste Water Recycling Re-use of waste (gases) Waste water treatment Water recycling Flood prevention (no dams) Sole Arranger, Structurer, Joint Bookrunner Financial Services Green 80% Regular Green 70% Regular 6 Energy efficiency Energy efficiency measures 4
Sustainability Improvement Loan framework Industry leader in sustainability 5-year sustainability program healthy people, sustainable planet launched 2016, goals until 2020: carbon neutral operations grow Green Revenues to 70% of sales, and 15% of revenues driven by circular economy-driven propositions Industry leader in sustainability Carbon neutral since 2007 Accelerating sustainable business innovation Developing new sustainable finance models Independent ESG and corporate governance research firm with >25 years of experience >300 staff, 15 offices providing local market knowledge Covering exchange listed companies globally Serving >350 institutional investors from 22 countries Features of Sustainalytics linked syndicated RCF ING acts as Sustainability Coordinator for Royal Philips corporate revolving credit facility, supporting Philips in pursuing its healthy People, sustainable planet strategy Available for Philips general corporate purposes, replacing the existing syndicated RCF EUR 1bn volume, 5+1+1 years tenor Pricing linked to Sustainalytics ESG rating if the rating goes up, margin goes down and vice versa International consortium of 16 banks: ING, ABN AMRO, Bank of America, BNP Paribas, BTMU, Citi, Deutsche Bank, Goldman Sachs, HSBC, ICBC, JPMorgan, Mizuho, Morgan Stanley, Rabo, Societe Generale, UBS [as part of] our ambitious healthy people, sustainable planet program last year, we are now able to link the interest rate structure of our new Revolving Credit Facility to our sustainability performance. [ ] This underlines our commitment to sustainability as an integral part of how we do business. Abhijit Bhattacharya, CFO of Royal Philips, Press Release (19 April 2017) 5
Green Loan framework Green loans are yet to be firmly established as a familiar financial instrument for sustainable companies. So far only the bond market and SSD market have established recognizable voluntary frameworks for green issuers. The loan market is a strong growth area due to increasing demand from both borrowers and lenders and simple execution. ING s track record in green financing positions us as a credible coordinator. ING s Green Loan Principles Use of Proceeds Determine eligible categories for Green Projects, comparable to framework for Green Bonds Process for Project Evaluations Select new Projects for financing and refinancing of current green projects Management of Proceeds Determine governance and way of tracking proceeds Reporting Report allocation of proceeds periodically Eligibility Criteria - Use of Proceeds Process Eligible Projects & Management Reporting Renewable Energy Distribution network Define Projects Audits Transmission network Smart grids Management of Proceeds Assurance of proceeds by auditor Use of Proceeds tailored to [Client name] s specific needs, sustainability and environmental strategy Breadth of potential eligible use of proceeds to be explored The process of defining projects is outlined in documentation and includes the criteria for making projects eligible for Green Loans Independent Assurance report by a Big Four auditor Auditor tracks the proceeds and reports the list of projects to which the proceeds have been allocated Reporting to be performed periodically 6
Insert filepath here Real estate finance Advisory tool Development of an advisor product to help clients save energy Ambition Reduce CO 2 emissions by 15-20% for the Dutch REF portfolio and EUR 50 mio of energy cost savings per year Targeting 5,000 Dutch clients to sustainablize their portfolio and 28,000 buildings to be scanned Why Buildings are the largest producers of CO 2 accounting for 40% of all emissions All clients are offered an app with an analysis of their portfolios How If potential energy savings of over EUR 1.5k, the client is offered a free on-site BREEAM and Energy check I m pleased with the ING app as it provided us with the insight that we can reduce a lot of carbon emissions Bas van Holten, CEO Merin 7
Expert Panel members Funding Panel members Sustainable Finance Collective Asia - cross industry collaboration Description The Funding Panel and the Expert Panel Online platform aiming to accelerate the funding of sustainability proposals Access to a range of capital including debt, equity and/or mezzanine. Blended finance Open to corporations operating in Asia Please visit www.sfc-asia.com 8
Global efforts to address climate change COP 21: Paris Agreement to keeping global warming <1.5-2ºC An initiative led by investors to engage with the world s largest corporate greenhouse gas emitters to improve governance on climate change, curb emissions and strengthen climaterelated financial disclosures Financing the 2 degree scenario Private sector needs to step in to invest in low-carbon technologies and developing new business models (e.g. circular) Climate change a business opportunity: estimated $ US 6tr of investments in a green economy is needed every year until 2030 Scenario analysis work streams have kicked off globally COP22 Moroccan Presidency is placing significant emphasis on practical funding solutions of the Nationally Determined Contributions The initiative to support the transition to a low-carbon economy globally. Every sector in every market will be transformed. Targets adopted by companies to reduce greenhouse gas (GHG) emissions are considered science-based. Taskforce on Climate-related Financial Disclosures ( TCFD ) Increasing needs by investors, lenders, and insurance underwriters to assess and price climate-related risks and opportunities 9