ING Group NV, the world’s biggest lender to commodities trading, will starting cutting the volumes of oil and gas deals that it finances as it looks for ways to dramatically reduce its carbon footprint.
(Bloomberg) — ING Group NV, the world’s biggest lender to commodities trading, will starting cutting the volumes of oil and gas deals that it finances as it looks for ways to dramatically reduce its carbon footprint.
The decision promises to set a new bar for the bank industry, which has so far tended to limit restrictions on carbon-intensive financing to upstream lending. Commodity traders are highly reliant on banks to fund their purchases and shipping of resources, so any restrictions have the potential to reshape the industry.
ING is “one of the first and in any case the largest player to set volume based targets,” Anne-Sophie Castelnau, the Dutch lender’s global head of sustainability, said in an interview.
The Dutch bank plans to cut the volumes of traded oil and gas it finances by 19% by the end of the decade, it said on Tuesday. ING’s targets are significant in an industry that’s just starting to acknowledge the full scale of its role in facilitating global carbon emissions.
ING’s announcement “may act as a wake up call” for the rest of the industry, said Jean-Francois Lambert, who runs a consultancy on commodity trade and structured finance. “The traders will probably accelerate building out their renewables activity, which is not without risk.”
The upshot is that traders are having answer to banks “who are getting more demanding on these things,” Lambert said. “You’d expect more to follow with similar policies.”
This is a “major move” from ING, said Maaike Beenes, campaign lead for banks and climate at BankTrack. But the Dutch nonprofit is still waiting to see what the target will “amount to in practice,” she said.
ING has still been financing more fossil fuel activities than renewable energy projects, according to an industry analysis by BloombergNEF. The ratio of clean-energy lending and equity underwriting relative to fossil fuels needs to hit 4 to 1 by the end of the decade if the planet is to avoid the worst ravages of climate change as laid out in the Paris Agreement of 2015. For ING, that ratio was roughly 0.8 to 1 at the end of 2021, BloombergNEF estimates.
Oil and gas remain some of the biggest profit drivers for firms including Vitol, Trafigura, Gunvor Group and Mercuria, helping them rake in record results in recent years.
But trading houses are also pivoting toward becoming suppliers of cleaner energy sources, and all the major firms have bolstered power and carbon desks in recent years. Mercuria says that more than 50% of its investments will go toward renewable energy sources such as wind and solar by 2025. Vitol, Gunvor and Trafigura have also pledged sizeable amounts toward renewables investments.
Last year, ING became the first large global bank to stop financing new oil and gas exploration and extraction projects, and is on track to reduce its upstream oil and gas portfolio by almost a fifth by 2030, it said.
ING plans to restrict the financing of midstream infrastructure linked to new oil and gas fields by the end of this year. Its oil and gas sector finance will align with the International Energy Agency’s Net-Zero Emissions by 2050 Roadmap, it said. The bank is still seeking input from experts and peers to co-develop a detailed methodology and plans to publish full details of its plan in 2024.
(Adds comment from BankTrack in seventh paragraph.)
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