ING Group NV, a leading global lender to commodities trading, has announced its plans to cut the volumes of oil and gas deals it finances as part of its efforts to markedly reduce the company's carbon footprint.
The decision promises to raise standards for the bank industry, which has so far tended to limit restrictions on carbon-intensive financing to upstream lending. This move has the potential to transform the commodities trading sector, as traders rely heavily on bank funding to purchase and ship resources.
Anne-Sophie Castelnau, the Dutch lender's global head of sustainability, said in an interview that ING is “one of the first and in any case the largest player to set volume-based targets.”
ING plans to reduce the amount of traded oil and gas it finances by 19% by the end of the decade. This goal is significant, considering the industry just starts to recognize the full scale of its role in facilitating global carbon emissions.
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 became the first large global bank to stop financing new oil and gas exploration and extraction projects last year. It is on track to cut nearly a fifth of its upstream oil and gas portfolio by 2030, it said.
ING intends to limit the financing of midstream infrastructure associated with new oil and gas fields by the end of this year and have its oil and gas sector finance aligned with the International Energy Agency's Roadmap to Net-Zero Emissions by 2050.
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.
ING has still been financing more fossil fuel activities than renewable energy projects, according to an industry analysis by BloombergNEF. To meet the Paris Agreement of 2015's targets and avoid the worst consequences of climate change, the clean-energy lending and equity underwriting relative to fossil fuels needs to reach a ratio of 4 to 1 by the end of the decade. ING's ratio stood at approximately 0.8 to 1 by the end of 2021, BloombergNEF estimates.
While oil and gas remain some of the major profit drivers for firms such as Trafigura, Gunvor Group, Vitol, and Mercuria, these trading houses are increasingly pivoting towards becoming suppliers of cleaner energy sources.
To this end, all the significant firms have bolstered their power and carbon desks in recent years. Mercuria plans to direct more than half of its investments towards renewable energy sources, such as wind and solar, by 2025. Vitol, Gunvor, and Trafigura have also pledged substantial amounts towards renewable energy investments.