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One of the largest real estate lenders in Europe will no longer provide new debt for companies that don’t have a plan to cut the carbon emissions of their assets and issued a warning about the need to retrofit more assets.
In its Climate Progress Update 2024 report, Dutch bank ING said it had created a tool called ESG.X to assess the climate disclosure of 2,000 clients in its wholesale banking division, which includes its real estate borrowers.
It said it will assess their disclosures and decarbonisation plans between now and 2026 to understand how their clients are progressing.
“Based on that, we will continue with business as usual or, for those that are unable or unwilling to progress, apply stricter conditions on a case by case basis or we will consider ceasing financing them altogether,” ING said in a release.
ING has a €25.7B (£21B) real estate loan book across Europe and the U.S.
It said that 51% of its real estate clients had a low “maturity” level of disclosure on their climate transition plans, 19% a moderate maturity of disclosure and 30% an advanced level. ING stressed that a company with low disclosure maturity might still have a plan to decarbonise its assets.
ING uses a pathway created by the Commercial Real Estate Risk Monitor to measure how much the buildings it lends against need to decarbonise for the bank to hit its 2050 net-zero target.
ING's portfolio is 1.7% behind where it needs to be in order to hit that target even as the energy intensity of the buildings it lends against dropped 6.5% in 2023.
Since 2023, any new loan ING makes must have a minimum sustainability standard in place or a decarbonisation plan for the asset being lent against, it said.
While its loan portfolio is getting more energy efficient, ING also issued a warning to the real estate sector about the difficulty it will face in hitting its sustainability targets.
“Looking ahead, we forecast that the commercial real estate sector as a whole will struggle to remain on its net zero pathway, which will create challenges for ING to steer our portfolio along that path,” it said.
“This is because of low demand currently for renovations, in part as a result of increased renovation costs driven by inflation and high interest rates, and high dependencies on external circumstances that can restrict progress, like the lack of legislation on energy performance certificates.”
ING added that banks have a key role in pushing real estate to decarbonise.
“We anticipate that more stringent sustainability lending requirements will result in a steeper decline in emissions intensity over the coming years,” it said.
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