(Bloomberg) -- Going green is more than just a question of morality at ING Groep NV. It can also result in cheaper funds.
The Dutch bank writes sustainability-linked loans that typically knock off between 5 percent and 10 percent of the cost of capital if the borrower reduces its impact on the environment, according to Leonie Schreve, global head of sustainable finance at ING in Amsterdam.
“This used to be a space for CEOs, sustainability teams,” Schreve said. “Now we’re seeing CFOs get involved, they are very interested.”
The incentive is reminiscent of health insurance that’s pricier for smokers or lower car insurance premiums for straight-A students. It’s a recent development in a fast-growing market for environmental financial instruments that also includes green bonds and low-carbon equity indexes.
Since the Paris climate agreement was passed by representatives of almost 200 countries, global business has been making moves to become more environmentally friendly, including the financial services industry. Europe’s largest asset manager Amundi SA said recently that it sees a “tipping point” in climate investing. ING’s activities are an indication that it’s seeping into corporate lending as well.
ING ranks the borrowers’ sustainability metrics against a benchmark, using third parties such as Sustainalytics GmbH. It will then check in periodically and re-calculate its rating to determine whether it has improved or deteriorated. The cost of capital can shift both up and down, depending on the company’s actions.
ING’s first sustainability-linked loan was to Koninklijke Philips NV, an electronics company, for 1 billion euros ($1.2 billion). Since then it has closed 15 other deals.
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