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How ING aims to support the decarbonization of its trade finance clients
The Key Benefits
ING has long been committed to supporting its clients achieve their climate goals, having issued the world’s first sustainability-linked loan (SLL) to Philips in 2017. Now, the bank enters a new chapter with CarbonChain, whose platform will provide the necessary carbon insights for ING’s commodity finance clients to help them track and reduce their emissions in their logistics and trade flows.
To support global climate goals and steer ING’s portfolio emissions towards net zero, we want to incentivize our clients to decarbonize. CarbonChain supports our engagement with TCF clients in their transition path by providing the relevant carbon insights.
Gregory Lambillon, CEO and Country Manager, ING Switzerland
The Client
ING
ING is a global financial institution with a strong European base, offering banking services through its operating company ING Bank, one of the leading banks in financing the trade of hard and soft commodities. ING initiated the first ever sustainability-linked loan (SLL) in 2017 and is part of the Net-Zero Banking Alliance in support of achieving a world with net-zero greenhouse gas emissions by 2050.
The Challenge
Closing the data gap for Trade Commodity Finance (TCF) clients
As climate risk threatens the global economy, ING is committed to developing products with the aim to help clients decarbonize. ING’s Terra approach is designed with the ambition to steer the most carbon-intensive parts of its portfolio towards net-zero by 2050 or sooner. At client level, the bank puts its financing, sector expertise, international network and climate-action experience to work in helping to accelerate the transition of its clients to a low-carbon economy.
However, a key hurdle for collaborating with trade finance clients on structures like sustainability-linked loans (SLLs) is the scarcity of emissions data, usually a key element of the KPI framework. Even if commodity trading companies are willing to share information with their banks, they often do not have sufficient information about the carbon impact of the goods they buy and sell (Scope 3). For example, rather than including an aluminum product’s full carbon footprint from resource extraction onwards, trading companies often only manage to collect information for a particular smelter or a particular shipping leg, and struggle to ensure consistency across supplier reporting.
In 2022, ING turned to CarbonChain’s platform to:
- Gain an understanding of the impact of global commodity and physical trade flows on greenhouse gas emissions;
- Get a clear map of supply chain hotspots for each client;
- Be able to create new KPIs for sustainability-linked loan agreements with clients thanks to CarbonChain data.
Sustainability-linked structures are a helpful instrument to engage with clients on decarbonizing and derisking their commodity supply chains. But that only works if you have the right emissions data. CarbonChain is a useful tool in this respect, as we can discuss the data with our clients to set their KPIs, and it is externally validated.
Benjamin Roger, Trade Commodity Finance - Team Lead Transaction Manager at ING
The Process
In-depth trade footprints for robust targets
1) Mapping financed trades
ING approached several clients who were willing to gain further insights into the carbon emissions of their trade flows. Once they agreed to embark on piloting sustainability-linked loans with ING, CarbonChain provided ING with access to a dashboard showing its financed trades. Trades were mapped out using digital modeling to fill any provenance, supplier and asset data gaps contained in the trading companies’ raw data.
2) Calculating emissions
CarbonChain calculated the carbon footprint of each ING-financed trade, per product, for the baseline year for the bank and the trading company’s KPI agreements. The methodology was audited by SGS and Bureau Veritas, as third party validations are key in this process.
To avoid slow and incomplete supplier reporting, CarbonChain’s software measures emissions quickly and automatically, using machine learning, an independent database of asset-level emissions factors. Within weeks, ING had access to accurate emissions reports for every relevant trade from source to shipment. These reports included absolute emissions as well as emission intensities per product.
3) Setting KPIs and loan agreements
Using CarbonChain’s benchmarking tool (which rates trades according to their performance against industry averages), ING worked on separate agreements with each trader to set emissions reduction targets based on ascience-based transition plan with key performance indicators (KPIs) and financial terms for a sustainability-linked loan.
Targets can vary but are related to:
- Increasing the proportion of trades with a lower-than-average carbon intensity, and reducing the proportion of those that have an average or higher-than-average carbon intensity, to improve the book composition of emissions traded;
- Reducing the carbon intensity of the logistics associated to the trade flows;
- Decreasing the carbon intensity of a portfolio in line with science-based transition plans;
- Increasing trading companies’ EcoVadis ESG scores.
ING and each of its clients has access to a trader-specific dashboard that tracks progress against the relevant targets.
We have been very pleased to collaborate with ING and CarbonChain to put in place our sustainability-linked bilateral loan with a strong KPI framework articulated around an EcoVadis rating and carbon-intensity KPIs on our trading book, including a target aligned with the International Copper Association’s (ICA) science-based net-zero transition plan trajectory.
Nikola Miskov , Head of Legal Affairs & Structured Finance, MRI Trading AG
The Outcomes
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1) Transparent data on trade emissions
Today, ING is equipped with a tool that allows it to create a new KPI for clients active in the trade commodity business. The data provides a granular view on trade flows and insights to take concrete actions to improve, issued by the CarbonChain methodology which offers external verifications with SGS and Bureau Veritas audits.
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2) Client collaboration on carbon strategies
Thanks to CarbonChain, ING and its clients get verified data into the carbon hotspots that need attention, so they are better equipped to come up with possible solutions. For example, ING’s clients are increasingly impacted by tightening regulations on carbon emissions such as the EU’s Carbon Border Adjustment Mechanism (CBAM) and SEC disclosure. While such regulations force action, sustainable finance incentives help clients get prepared early and turn carbon risk into opportunities.
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3) Sustainable finance innovations
Sustainability-linked loans need to be based on KPIs that align with globally accepted, science-based decarbonization pathways and carbon accounting methodologies. That means including all relevant supply chain emissions for traders, to get a holistic and realistic view of emissions. Using the CarbonChain platform allows ING to help its clients create meaningful KPI targets, with both the bank and the trading company understanding what it will take to reach them and what their concrete impact will be.
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