ING Cuts Dirty Loans as Banks Purge Books to Meet CO2 Goals
ING Cuts Dirty Loans as Banks Purge Books to Meet CO2 Goals
(Bloomberg) --
ING Groep NV will cut lending to fossil-fuel companies at a faster pace than previously planned as the finance industry races to slash its carbon footprint in time to meet goals laid out in the Paris Agreement.
The Dutch bank intends to reduce financing for upstream oil and gas projects by 12% from the 4 billion euros ($4.7 billion) it loaned the industry in 2019, according to a revised sustainability report seen by Bloomberg. ING wants to reach the new target in four years, compared with a previous goal of a 19% cut in such funding by 2040.
Banks are under growing pressure to prove their loan books aren’t feeding businesses that contribute to global warming. The latest assessment by the United Nations’ Intergovernmental Panel on Climate Change underscored the urgency of the transition that’s needed, as the planet overheats.
The sense of alarm has led the European Central Bank to step up pressure on banks as it prepares for an historic round of stress tests next year to figure out just how exposed the industry is to extreme weather.
“We are fully conscious of the role we need to play,” Anne-Sophie Castelnau, ING’s head of sustainability, said in an interview.
Like many other banks, ING is now going through its loan portfolio to identify the biggest emitters of greenhouse gases as it tries to meet a goal of net-zero carbon emissions by 2050. That’s as nonprofits and activists name and shame laggards. ING says it’s directing more funds to the clean energy sector, with loans to renewables reaching 64% of total financing for power generation in 2020.
Aside from oil and gas, the Dutch bank says it will set tougher carbon policies for a number of other sectors including automotive, real estate, shipping, steel, and cement, all identified as heavy emitters. Investors are scrutinizing banks’ exposure to climate risk to see how well they’ll handle the transition to a low-carbon economy amid tougher regulations and increasing public pressure. Castelnau signaled that clients with big carbon footprints should expect to face higher loan costs.
It’s already clear that the transition from old to new energy won’t be smooth, as prices skyrocket in Europe. Gas and power prices have repeatedly broken records across the continent and in the U.K., as economies emerge from the pandemic demanding more energy just as supplies are disrupted.
In the half decade through May, banks have poured more than $3.6 trillion into fossil fuels, according to Bloomberg data. But there’s evidence the tide is shifting, with loans and bonds for green projects this year exceeding those to the fossil industry for the first time.
As the primary gatekeepers of capital for much of the world economy, banks have a critical role to play in efforts to limit global warming. And in Europe, corporations tend to rely more on their banks than on the capital markets for funding, putting even more pressure on the sector to show progress in cutting its carbon dioxide exposure.
Castelnau says ING has done as many sustainable finance deals so far this year as it completed in all of 2020. In a Bloomberg New Energy Finance league table ranking banks’ green, social and sustainability euro-bond issuance, ING ranks fourth.
©2021 Bloomberg L.P.