The Dutch bank ING is drawing new scrutiny over the climate risks in its investment portfolioThe intergovernmental organization OECD has agreed to look into Dutch bank ING's climate risks.

By Ucilia Wang

Dutch bank ING has become the first company to face scrutiny from an intergovernmental group, Organization for Economic Co-operation and Development (OECD), for failing to follow its climate change guidelines.

OECD responded to a complaint filed by four advocacy groups, including Greenpeace and Oxfam, demanding the bank measure and cut the emissions resulting from its investment portfolios. The country representative for OECD in the Netherlands agreed to take up the case last month.

Any decision by OECD isn’t binding. The organization, which has 35 member countries, developed a series of guidelines, including one on climate change, that companies of the member countries are supposed to follow. Still, OECD’s decision to take up this case is a departure from its previous reluctance to tackle climate complaints  and reflects a growing public interest to hold banks accountable for their investments in fossil fuels globally.

OECD, whose membership includes the U.S., previously refused to look into climate complaints, including one against Volkswagen in Germany in 2007 and another one against power company Vattenfall in 2009, also in Germany. The banking and investment industry is increasingly being scrutinized for its slow progress in dealing with climate risk. The financial industry regulator in Australia recently warned banks and insurers about the perils of not doing enough to calculate those risks.

“We still have not seen one bank with a comprehensive strategy leading from the top, with distinct timelines and targets for reducing exposure to carbon intensive industries,” said Lauren Compere, managing director of Boston Common Asset Management, a social impact investment firm that tracks the bank industry’s progress in addressing climate change.

ING is invested heavily in fossil fuels, making it a target for the complaint with OECD. Between 2009 and 2014, 89 percent of ING’s loans and underwriting activities in energy went to oil, gas and coal companies, the complaint said. That’s a much larger chunk than other major Dutch banks had lent to fossil fuel companies during the same period.

More recently, ING loaned $121.5 million to SUEK, Russia’s largest coal company, in 2016.

“It’s an interesting and innovative way to get some attention and maybe set precedents on how to interpret OECD guidelines and embolden other countries to rope-in other multinationals,” David Hunter, an international environmental law professor at the American University Washington College of Law, said about the complaint against ING.

In the past decade, environmental groups and shareholders have become active in using petitions, public shaming campaigns or other strategies to try to nudge banks, pension funds, insurance companies and other major investors to reduce their fossil fuel investments.

Some banks have policies on reducing coal investments, but none have strong plans to deal with climate risks, which spread far beyond coal.

OECD and the Netherlands are good venues for nudging banks to cut their emissions and, ultimately, reduce their fossil fuel investments, said Peter Ras, senior policy advisor for transparent and accountable finance at Oxfam in the Netherlands.

OECD’s climate guidelines say banks should take inventory of both their own emissions and those from the businesses and projects they invest in.

Each country has its own OECD representative, called national contact point, that promotes the guidelines and resolve disputes over them.

That means countries like the U.S. are unlikely to take much action on the climate guidelines, but in the Netherlands, climate action is considered much more urgent.

A study released by the Dutch Central Bank last month said financial institutions and insurers aren’t doing enough in considering the risks of climate change.

“If ING says we don’t want to follow it, then we know the parliament will pressure the finance minister to start a high-level dialogue with the CEO of ING to explain why they should comply,” Ras said. “We know ING hates this kind of things.”

In its statement about taking on the case, OECD’s Dutch representative also expressed hope that the ING case would set a template for other countries to nudge their banks to follow the climate guidelines.

In a response to the complaint posted on its website, ING said it isn’t able to calculate indirect emissions and some of its investments are in private companies that aren’t required to disclose emissions. ING already measures and offsets the emissions from its own operations.

There is no lack of willingness on ING’s part but what the complainants are asking for is currently not technically possible. There is currently no international standard on reliable and comparable data for calculating CO2 emissions,” ING said. “The absence of information on emissions by our global customers and the lack of international methodology to attribute financed emissions to a climate scenario mean it is impossible for ING to meet the wishes of the complainants. No international bank can.”

Ras said other banks and investment groups have figured out ways to take stock of their indirect emissions. Plus, 12 Dutch banks, excluding ING, have been working together to create metrics for accounting for those emissions, and they plan to publish their methodologies this month and encourage their use. ING could use those metrics starting next year, Ras said.

“We aren’t asking ING to be a complete green bank. We also don’t accept any soft or weak targets,” Ras said.

Turning to OECD is one step short of passing laws or taking banks to court to compel them to act, both of which are much more difficult to accomplish, Hunter said.

While banks play a crucial role supporting the fossil fuel industry, they haven’t been a target in an increasing number of lawsuits worldwide that seek to hold fossil fuel companies or government agencies that regulate them responsible for the impact of climate change, he added.

Fossil fuel companies have successfully argued that they shouldn’t be penalized for their contribution to global warming or specific climate events, such as sea level rise, because they aren’t the only ones polluting the air. That makes it challenging to tie banks to climate change because financial institutions are a step removed from digging up and selling fossil fuels, Hunter said.  

“Frankly we don’t have a lot of legal leverage (with banks). At least we are trying to hold them to a set of standards. But enforcement isn’t going to be through courts but the good office of the Dutch Contact Point,” he said.