Herry Cho

Presentation Ⅱ

(Head of Sustainable Finance Asia Pacific, ING Group)Integrating climate in business strategy: ING Terra Approach of

portfolio alignment

[ session 2 ]

ING’s Paris alignment journey

Herry Cho – Head Sustainable Finance APAC

June 2020

Climate Action Conference 2020, Seoul

ING is a Wholesale and Retail bank serving more than 38 million customers across 40 countries worldwide

Empowering people to stay a step ahead in life and in business.

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Direct global emissions:

35%

6%21%

14%

24%

Power andHeating

Buildings

Industry

Transport-ation

Agri/Land Use

We start where our biggest impact lies:

Isabel Fernandez Board Member and Head of WB

“ING commits to steer its entire €600

billion lending portfolio towards the

well-below 2 degree goal of the Paris

Agreement.”

Our commitment to support Paris Agreement goals shared in 2018

Explaining the climate alignment of a bank’s loan book

The methodology allows a bank to answer the following questions:

“What is the impact of our business on climate change?”

External reporting:

Current Exposure:

Per sector: As per today, what does the portfolio’s technology exposure look like?

Internal steering:

Future Exposure:

In 5 years, what will the client / portfolio’s technology exposure look like?

In 5 years, how should the portfolio’s technology exposure look like, in a 2 degree (or below) scenario?

Utilising Terra would give us excellent insights on how to incentivize our business in the future towards

a Paris aligned portfolio

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Terra is a sector-specific, science-based, forward-looking and engagement-driven approach

The Terra approach: our strategy to steer towards Paris

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• 2dii developed methodology for the asset management industry (equity and bond portfolios)

• ING – as the first bank – led the pilot to adapt methodology for the banking industry

• Approach validated with

• Academics

• Banks

• Politicians, civil servants, NGOs and other stakeholders

Validated method to align to 2°C goal

+ four financial supervisors+250 asset managers

2°ii 1 – a global think tank on climate-related metrics and policies in financial markets

Note: 1) https://2degrees-investing.org/

Partners

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1. Compare loans per key sector to 2

degree scenarios

2. Focus on required technological change

3. Use of client level data from external

databases

Key characteristics of Terra Approach

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Draws from two main methodologies for target-setting:

• PACTA• SBTi SDA

Critical principles:

• Sector-based• Uses Physical Asset-level-data• Applies science-based scenarios• Client-focused• One target per sector• Apply the best-fit methodology

per sector

The Terra Approach overcomes the issue of limited data availability for most sectorsVia external Business Intelligence databases Terra has access to global asset level data at client level

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Forward-looking data on production capacity

22,000 Oil and Gas Fields

2,000 coal mines

>100,000 power plants

95 million produced cars

36,000 airplanes

10,000 ships

2,200 cement factories

13,000 steel plants

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This means different things need to happen in each sector

Power industry:over time, close down e.g. coal power

plants, and invest in a massive growth in renewables (hydro, sun and wind).

Gas and nuclear are needed as transition fuels.

Automotive industry: change from internal combustion

engines to electric vehicles

Fossil fuels:Move quickly away from coal, slowly

decrease oil production and temporary increase in gas to help the power sector

transition

• Methodology does not allow you to compensate between different sectors. These changes simply need to happen.

• We want to engage our clients in this conversation.

Steel and Cement production: Lower CO2 emissions though more modern factories and operational

improvements

Aviation and Shipping: Lower CO2 emissions per mile travelled

through changing fleets, operational efficiency, biofuel use,

etc.

Real Estates/ mortgages: Improve insulation, increase renewable

power installations

Terra methodology looks at the market today and required changes: Banks finance change

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Capacity

CoalCap OilCap GasCap

NuclearCap HydroCap RenewablesCap

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Capacity changes per year

CoalCap OilCapGasCap NuclearCapHydroCap RenewablesCap

Aligning to the changes needed

IEA 2DS scenario (total capacity need per technology type) IEA 2DS scenario (new capacity need per technology type)

Aligning to the market today

Example: Power

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PACTA allows us to match asset-level data to our portfolio (bottom-up) and benchmark this against climate scenarios.

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Setting a target

requires a normative

benchmark: each

sector has its own

technological transition

described by external

scenarios, that’s why

we need a sector-

specific approach for

target setting

Terra Progress Report 2019

Global Sustainability, ING Group

Our Approach to climate action

New York| September 25, 2019

Sector in Scope Measurement Methodology Target-setting Methodology Primary output Reporting Metric

Power PACTA PACTA Technology Mix kg CO2/MWh

Automotive PACTA PACTA Technology Mix kg CO2/km

Cement PACTA SBTi SDACO2 intensity per

unit of productionkg CO2/ tcement

Real Estate Delta Plan (NL) Paris Proof Method (NL) EPC Distribution kg CO2/m2

Mortgages PCAF (NL, DE) SBTi SDA EPC Distribution kg CO2/m2

Fossil Fuels PACTA PACTA In progress In progress

Steel PACTA SBTi SDACO2 intensity per

unit of productionkg CO2/tsteel

Shipping Poseidon Principles Poseidon Principles kg CO2/ tNM kg CO2/ tNM

Aviation PACTA SBTi SDA kg CO2/passenger km kg CO2/passenger km

The Terra ‘tool box’ of methodologies

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Portfolio view - Outstandings as of year-end 2018

Power Generation Automotive Commercial Real Estate

ShippingAviation

Steel Fossil FuelsResidential Real Estate Cement

On track Under developmentNot on track Unavailable

0

100

200

300

400

500

600

GH

G in

ten

sity

(kg

CO

2e

/MW

h)

Global and OECD Decarbonisation Pathways

SDS Scenario OECD SDS Scenario Global Market

ING Portfolio ING Target Convergence Pathway

0.00

0.05

0.10

0.15

0.20

0.25

GH

G in

ten

sity

(kg

CO

2e

/KM

)

Global Pathway to Zero Tailpipe Emissions

B2DS Scenario Market ING Portfolio ING Target Convergence Pathway

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5

10

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35

GH

G In

ten

sity

(kg

CO

2e

/m2

)

European Union Decarbonisation Pathway

B2DS (EU) Scenario ING Portfolio ING Target Convergence Pathway

0

10

20

30

40

50

60

GH

G In

ten

sity

(K

gC

O2e

/m2)

NL Decarbonisation Pathway

Delta Plan Target ING Portfolio ING Ambition Convergence Pathway

0.0

0.1

0.2

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GH

G In

ten

sity

(tC

O2e

/tce

me

nt)

Global Decarbonisation Pathway

B2DS Scenario Market ING Portfolio ING Target Convergence Pathway

Climate Alignment Dashboard (CAD) – Outstandings YE 2018

Power Generation

0

100

200

300

400

500

600

GH

G in

ten

sity

(kg

CO

2e

/MW

h)

Global and OECD Decarbonisation Pathways

SDS Scenario OECD SDS Scenario Global Market

ING Portfolio ING Target Convergence Pathway

Zooming in: Power Generation

Scope

• Outstandings in scope: €7.6 billion

• OECD/non-OECD split: 90/10 (outstandings)

Our performance

• On Track: outperforming the market andscenarios

• Roughly half of the portfolio financesrenewables.

• Our coal policy will mean close to zero coal by 2025

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Current technology mix vs. new capacity additions of ING’s Automotive portfolio

Enabling Client Engagement: Automotive example (dummy data)

… it’s not just about

financing the ‘green’

companies today, but

also financing those

with a ‘green’

investment profile for

tomorrow

Car Co.

Company G

Comp K

Comp E

Comp F

Inv

est

me

nts

in

ne

w l

ow

ca

rbo

n (

EV

) ca

pa

city

vs

be

nch

ma

rk

Today’s technology mix compared to market

Worse than the market Too little or no build-out

Better than the market Too little or no build-out

Better than the market Build-out > benchmark

Worse than the market Build-out > benchmark

Loan size

> €50m

€25m-€50m

€10m-€25m

Out performingUnder performing

58%22%

20%

ICE Vehicle Capacity

EV Capacity

Hybrid Capacity

42%Low

carbon

Car Co.’s mix 2018

Investment profile

..% ..% ..%

Company XX

Company D

Company C

Company B

Company AComp

M

Comp L

Comp N

Comp x

Comp.z

ING to ENGAGE

ING to EXPAND

Company J

Comp I Low

carbon

Having impact means going beyond ING – we need collaboration across the sector

The Katowice Commitment

At COP 24 in Katowice, four international

banks joined ING in pledging to align their

loan portfolios with global climate goals.

This is a combined lending of >€2.4 trillion

+

30 banks globally

• Stakeholder feedback for methodology refinement

• Finalizing the analysis for the remaining four sectors & update CAD annually

• Ongoing participation in the current initiatives: SBTi, PACTA pilot, UNEPFI PRB

• Coming up with actual future steering methodology

• The cherry on top: Understanding our impact

Next steps

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