by Dick Oskam, Global Head of Sales for Transaction Services and Armand Ferreira, Director Sustainable Finance, ING
Sustainability has been on the corporate agenda for many years, but we are now reaching an inflection point, driven by environmentally and socially conscious corporations, consumers and banks, such as ING. While some companies have treated sustainability as a regulatory and corporate reporting requirement in the past, it is now becoming a crucial component of the political, economic and social agenda and therefore central to business strategy and delivery. ING has been an industry leader in placing sustainability at the heart of our business, which in turn shapes our strategy, approach to financing, solutions and service delivery.
As sustainability becomes central to corporate culture, it will increasingly become a criterion for corporate treasurers when selecting their partner bank. As a result, ING’s value proposition as a partner bank, not only for transaction and financing services, but as a strategic partner that demonstrates shared corporate objectives becomes increasingly compelling.
A partner for achieving sustainability
Financial services have an important role to play creating a healthy and sustainable world, not just by trying to be more sustainable ourselves by reducing our direct footprint, but also in the choices we make in lending, investing and the services we offer to customers. For example, we were an early signatory to industry-wide initiatives such as the Equator Principles, but we are committed to encouraging and promoting the sustainability agenda across our business. From a financing perspective, for example, this includes prioritising businesses and projects that deliver environmental and social improvements.
Progress towards sustainable lifestyles and business practices cannot move fast enough, but given the scale and complexity of the challenge, sustainability across all aspects of the way that we live and work is a longer-term objective rather than a short-term goal. For example, it is difficult for many people to imagine how they would manage without a car; however, as they become accustomed to hybrid and ultimately fully electric vehicles, their choices and expectations change.
The same applies to the business community, including banks. If all financing for less sustainable technologies and power generation were to be switched off overnight, the economic and social impact would be devastating. However, by encouraging more sustainable alternatives, such as renewable and clean energies, recycling waste products into fuel and usable materials, and enhancing public transport infrastructure through access to financing, we are witnessing a similar change taking place. At ING, we are pioneering sustainable finance, investing €20.9bn sustainable transactions financed by mid 2015, and this remains a key element of our strategy.
The heart of our business culture
Our pioneering business approach is less obvious when looking at specific transactional services such as cash management, which by their nature focus on sustainability through automation and dematerialisation. Increasingly, however, a bank’s sustainability credentials are becoming more important to potential customers when appointing a partner bank. This is already most apparent amongst government and public bodies who are expected to demonstrate and promote sustainability principles, driven in part by consumer pressure and therefore their democratic mandate.
For example, the Dutch government recently named ING as its bank of choice, with sustainability a key selection criterion. From 2016, ING will provide comprehensive payment services to all Dutch government departments and government agencies such as the Central Law Enforcement Collection Bureau and DUO, the executive agency for education, which accounts for about 40 million transactions. This builds on the existing relationship between ING and the Dutch government, as ING has been processing all payments for the Dutch tax authorities since 2011, which will continue alongside this new arrangement. The Dutch government selected ING based on its ability to meet stringent cost, quality and sustainability criteria. These criteria included the quality of payment services, security, innovation, service offering and implementation and technical requirements.[[[PAGE]]]
Evolving treasury criteria
The sustainability agenda has not yet become a priority for many treasury departments, with some exceptions, particularly in industries that are environmentally and socially sensitive, and as a result of the increase of the Green Bond market. Indeed, it is often the most successful and forward-looking treasurers that are leading the movement towards sustainability in the way that they conduct their business. For example, beverage companies for whom water is a key raw material regularly work with government and private operators to ensure reliable access to clean water around their production sites, which also impacts local communities. Textile businesses need to ensure that chemicals used in production are safe for workers and other residents, and that waste products do not pollute land or water supplies. These efforts also have a wider supply chain impact, as clothing manufacturers and retailers typically buy from local factories rather than operating production centres directly.
Similar examples can be found across a multitude of industries, and as sustainability becomes more deeply ingrained into the corporate culture, treasurers will also become stronger advocates of sustainability. Consequently, when choosing a partner bank, its environmental and social credentials will become as important as credit quality, geographic reach, depth of solutions and quality of service. Furthermore, a bank’s ability to demonstrate its corporate social responsibility attributes is not a one-off process, but a constant process of reinforcement and improvement. For example, the Dutch Parliament will hold ING publicly accountable for upholding the sustainability commitments we have made.
Creating momentum
At ING, we are proud of the progress we have made so far, which helps build further momentum. For example, we improved our performance substantially in the Dow Jones Sustainability Indices (DJSI) annual review 2015, which named ING as one of the leaders in the banking sector. This year, we scored 86 out of 100, against an industry average of 61, representing an almost 5 point increase on our 2014 score. We also received a higher rating from Sustainalytics, a global leader in sustainability research, with a score of 88 out of 100, a rise of 14% compared to last year. As with DJSI, the higher score is attributable to our sharpened sustainability focus, improved environmental social responsibility (ESR) policies and our enhanced product offering in promoting sustainability amongst our clients. These are not yet perfect scores, and there is always further to go, but they demonstrate the success and external recognition of our sustainability strategy.
The next generation
Looking more widely across the financial services sector, leading banks will continue to play an important role in introducing innovative and sustainable solutions, but it is a responsibility shared by all financial market participants. As in other businesses, banks are employing a new generation that has grown up with a strong sense of environmental and social responsibility. As this generation takes on leadership positions in industry, banking and government, we can also expect the sustainability agenda to accelerate. Most current executives at every level in an organisation understand and appreciate the importance of economic and social sustainability: the next step is to embed this awareness into their daily practice. The financial technology (‘fintech’) community is a good example of how the sustainability agenda can be accelerated, as in some cases the executive profile is younger than that of their peers in the banking and large corporate world. Furthermore, as these companies do not need to contend with complex legacy systems and processes, they are able to introduce innovations that promote new and sustainable business models and working practices more quickly than larger and more established players.
What is clear is that no individual or organisation can deliver their sustainability objectives alone. Collaboration, dialogue and partnership based on joint aims and commitment is already bearing fruit, across state and private sectors and private individuals. The United Nations Climate Change Conference in Paris is a demonstration of this commitment by leading institutions. However, this will not solve the environmental and social problems that we are committed to addressing, but has the potential to accelerate change, an aim that ING warmly endorses and that we hope to demonstrate across all that we do.
