Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk factors margin and capital requirements for security-based swaps. Along with the still indeterminate effective date for SEC regulations on, among others, reporting, registration, and internal and external business conduct with respect to security-based swaps, these are likely to materially impact ING. Additionally, the CFTC is expected to adopt capital requirements for swap dealers, although the specific requirements, and any available exemptions, have not been finalized. If these requirements are applicable to ING, and no exemptions are available, it is possible that these requirements will be difficult for ING to comply with and may, as a result, materially and adversely impact ING's ability to operate as a swap dealer in the US Other CFTC regulatory requirements, already implemented, include registration of swap dealers, business conduct rules imposed on swap dealers, requirements that some categories of swaps be centrally executed on regulated trading facilities and cleared through regulated clearing houses, and initial and variation margin requirements for uncleared swaps. In addition, new position limits requirements for market participants that have been proposed and may be contained in final regulations to be adopted by the CFTC could limit ING’s position sizes in swaps referencing specified physical commodities and similarly limit the ability of counterparties to utilize certain of our products by narrowing the scope of hedging exemptions from position limits for commercial end users and the trading activity of speculators. All of the foregoing areas of regulation of the derivative markets and market participants will likely result in increased cost of hedging and other trading activities, both for ING
and its customers, which could expose our business to greater risk and could reduce the size and profitability of our customer business. In addition, the imposition of these regulatory restrictions and requirements, could result in reduced market liquidity, which could in turn increase market volatility and the risks and costs of hedging and other trading activities.
ING Bank may at some point in time consider whether to establish a branch office in the US. If ING
Federal Reserve under various laws and various restrictions on our activities under those laws, including the Bank Holding Company Act of 1956, as amended, and the International Banking Act of 1978, which could materially impact our operations. These restrictions would include, among others, the Volcker Rule, which generally prohibits certain proprietary trading activities and sponsoring or investing in private funds, such as hedge funds and private equity funds, and heightened prudential standards and additional supervisory requirements. In the event that we or one of our affiliates becomes subject to the Volcker Rule, it is expected that we would experience significant additional compliance and operational costs and may be prohibited from engaging in certain activities we currently.
The powers granted to resolution authorities under the BRRD include, among others, the introduction of a statutory ‘write-down and conversion’ power and a ‘bail-in’ power, which gives the relevant resolution authority the power to, inter alia, (i) cancel existing shares and/or dilute existing shareholders by converting relevant capital instruments or eligible liabilities into shares of the surviving entity, (ii) cancel all or a portion of the principal amount of, or interest on, certain unsecured liabilities (which could include certain securities that have been or will be issued by ING)
of a failing financial institution or group and/or (iii) convert certain debt claims (which could include certain securities that have been or will be issued by ING) into another security, including ordinary shares of the surviving group entity, if any. None of these actions would be expected to constitute an event of default under those securities entitling holders to seek repayment.
Union and is fully operational, with a complete set of resolution powers, as of 1 January 2016. The
Regulation, which may further bring future changes to the law. We are unable to predict what specific effects the Intervention Act and the implementation of the BRRD and the entry into force of the SRM Regulation may have on the financial system generally, our counterparties, holders of securities issued by or to be issued by us, or on us, our operations or our financial position.
In November 2015, the FSB published final standards on the adequacy of loss absorbing capacity held by G-SIBs. These comprise: (i) a set of principles on loss-absorbing and recapitalisation capacity of G-SIBs in resolution and (ii) a high level “termsheet” setting out an internationally agreed standard on the characteristics and adequacy of TLAC. The key requirement mandates G-SIBs to hold long-term debt that can be written down or converted into equity in the event that a G-SIB is put into liquidation, thereby providing a specific means of absorbing losses and recapitalising the G-
requirement for G-SIB that are intended to align the TLAC requirement with the minimum requirement for own funds and eligible liabilities (MREL). With regard to MREL, the SRB determined
Securities’) and in November 2016, ING issued USD 1.0 billion AT1 Securities. The Dutch parliament adopted Article 29a of the Dutch Corporate Income Tax Act of 1969 (Wet op de vennootschapsbelasting 1969) in 2015 to provide debt treatment of securities similar to the AT1
Within the financial services industry, the severe distress or default of any one institution (including sovereigns and central counterparties (CCPs)) could lead to defaults by, or the severe distress of, other market participants. Such distress of, or default by, an influential financial institution could disrupt markets or clearance and settlement systems and lead to a chain of defaults by other financial institutions because the commercial and financial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships. Even the perceived lack of creditworthiness of a sovereign or financial institution (or a default by any such entity) may lead to market-wide liquidity problems and losses or defaults by us or by other institutions. This risk is sometimes referred to as ‘systemic risk’ and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with whom we interact on a daily basis and financial instruments of sovereigns in which we invest.
Third parties that owe us money, securities or other assets may not pay or perform under their obligations. These parties include the issuers and guarantors (including sovereigns) of securities we hold, borrowers under loans originated, reinsurers, customers, trading counterparties, securities lending and repurchase counterparties, counterparties under swaps, credit default and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. Defaults by one or more of these parties on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values, continuing low oil or other commodity prices, operational failure or other factors, or even rumours about potential defaults by one or more of these parties or regarding a severe distress of the financial services industry generally, could have a material adverse effect on our results of operations, financial condition and liquidity. Given the high level of interdependence between financial institutions, we
has indicated that, in certain circumstances, it may require these financial institutions to cancel payment. If this were to happen, we expect that such instruments may experience ratings downgrades and/or a drop in value and we may have to treat them as impaired, which could result in significant losses. There is no assurance that losses on, or impairments to the carrying value of, these assets would not materially and adversely affect our business, results of operations or financial condition.
IFRS 9 ‘Financial Instruments’ became effective as per 1 January 2018 and results in loan loss provisions that may be recognized earlier, on a more forward looking basis and on a broader scope of financial instruments than was previously the case under IAS 39. ING has applied the classification, measurement, and impairment requirements retrospectively by adjusting the opening balance sheet and opening equity as at 1 January 2018. As a result of applying IFRS 9 going forward, a shift in the forward looking consensus view of economic conditions may materially impact the models used to calculate loan loss provisions under IFRS 9 and cause more volatility in, or higher levels of, loan loss provisions, any of which could adversely affect the Group’s results of operations, financial condition or regulatory capital position.
Since 2015, the EU has been discussing the introduction of a pan-European deposit guarantee scheme (‘EDIS’), (partly) replacing or complementing national compensation schemes in two or three phases. Proposals contain elements of (re)insurance, mutual lending and mutualisation of funds. The new model is intended to be ‘overall cost-neutral’. Discussions will continue in 2019, but it is still uncertain when EDIS will be introduced and, if introduced, what impact EDIS would have on
Further, the nature and timing of our hedging transactions could actually increase our risk and losses. Hedging instruments we use to manage product and other risks might not perform as intended or expected, which could result in higher (un)realised losses, such as credit value adjustment risks or unexpected P&L effects, and unanticipated cash needs to collateralise or settle such transactions. Adverse market conditions can limit the availability and increase the costs of hedging instruments, and such costs may not be recovered in the pricing of the underlying products being hedged. In addition, hedging counterparties may fail to perform their obligations, resulting in unhedged exposures and losses on positions that are not collateralised. As such, our hedging strategies and the derivatives that we use or may use may not adequately mitigate or offset the risks they intend to cover, and our hedging transactions may result in losses.
Operational risks, such as systems disruptions or failures, breaches of security, cyber attacks, human error, changes in operational practices or inadequate controls including in respect of third parties with which we do business may adversely impact our business, results of operation and reputation.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk factors equipment and software used in our computer systems and networks may not always be capable of processing, storing or transmitting information as expected. Despite our business continuity plans and procedures, certain of our computer systems and networks may have insufficient recovery capabilities in the event of a malfunction or loss of data. As part of our Accelerated Think
While we take due care and have policies and processes to protect our customers, systems and networks, and strive to continuously monitor and develop them to protect our technology infrastructure and data, we continue to be vulnerable to misappropriation, unauthorised access, computer viruses or other malicious code, cyber attacks and other external attacks or internal breaches that could have a security impact. These events could also jeopardise our confidential information or that of our clients or our counterparties and this could be exacerbated by the increase in data protection requirements as a result of GDPR. These events can potentially result in financial loss and harm to our reputation, hinder our operational effectiveness, result in regulatory censure, compensation costs or fines resulting from regulatory investigations and could have a material adverse effect on our business, reputation, revenues, results of operations, financial condition and prospects. Even when we are successful in defending against cyber attacks, such defence may consume significant resources or impose significant additional costs on ING.
Such initiatives include, among others, measures set out in Directive 2013/36/EU (CRD IV). Currently, implementation of the CRD IV rules varies significantly across the various Member States. As a consequence there is no level playing field. In addition, the Dutch Law on Remuneration Policies of
Financial Undertakings (Wbfo) has introduced a variable remuneration cap of 20% of base salary for employees working in the financial sector in the Netherlands. In some specific situations employees can be exempted and receive variable remuneration up to 100%. One of those exemptions is the so-called average-out exemption which can be applied to employees whose remuneration package is not or not exclusively covered by a collective labour agreement. Although most of the Dutch banks (including ING) have shown that this exemption is only used in exceptional cases and under predetermined conditions this exemption is under a lot of scrutiny from Dutch politicians. The Dutch Minister of Finance already announced that the rules that apply to this exemption will be stricter in the future. The introduction of the Wbfo has created an uneven playing field within the Netherlands for ING due to the fact that branch offices in the Netherlands of financial institutions that fall under CRD IV (i.e. that have their corporate seat in another EER
Netherlands, will continue to have an impact on existing ING Group remuneration policies and individual remuneration packages for personnel. This may restrict our ability to offer competitive compensation compared with companies (financial and/or non-financial) that are not subject to such restrictions and it could adversely affect ING Group’s ability to retain or attract key personnel.
We may incur further liabilities in respect of our defined benefit retirement plans if the value of plan assets is not sufficient to cover potential obligations, including as a result of differences between results and underlying actuarial assumptions and models.
ING Group companies operate various defined benefit retirement plans covering a number of our employees. The liability recognised in our consolidated balance sheet in respect of our defined benefit plans is the present value of the defined benefit obligations at the balance sheet date, less the fair value of each plan’s assets, together with adjustments for unrecognised actuarial gains and losses and unrecognised past service costs. We determine our defined benefit plan obligations based on internal and external actuarial models and calculations using the projected unit credit method. Inherent in these actuarial models are assumptions, including discount rates, rates of increase in future salary and benefit levels, mortality rates, trend rates in health care costs, consumer price index, and the expected return on plan assets. These assumptions are based on available market data and the historical performance of plan assets, and are updated annually.
We are involved in governmental, regulatory, arbitration and legal proceedings and investigations involving claims by and against us which arise in the ordinary course of our businesses, including in connection with our activities as financial services provider, employer, investor and taxpayer.
In the conduct of our business, we rely on a combination of contractual rights with third parties and copyright, trademark, trade name, patent and trade secret laws to establish and protect our intellectual property. Although we endeavour to protect our rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, trade names, patents, trade secrets and know-how or to determine their scope, validity or enforceability. In that event, we may be required to incur significant costs, and our efforts may not prove successful. The inability to secure or protect our intellectual property assets could have a material adverse effect on our business and our ability to compete.
Other factors, besides our financial results, that may impact our share price include, but are not limited to:  market expectations of the performance and capital adequacy of financial institutions in general;  investor perception of the success and impact of our strategies;  investor perception of our positions and risks;  a downgrade or review of our credit ratings;  potential litigation, investigations or regulatory action involving ING or sectors that we have exposure to;  announcements concerning financial problems or any investigations into the accounting practices of other financial institutions; and
The Executive Board and the Supervisory Board share the ultimate responsibility for reviewing and approving our annual report, including disclosures on material topics. For more information on our annual reporting governance please refer to the chapter About This Report. For information on data collection, scope, bounderies and definitions, please refer to the ING’s Non-financial data reporting protocol (www.ing/18ar028).
We engaged the following stakeholder groups in our materiality analysis process:  Wholesale clients from across ING markets;  Retail customers from the Netherlands, Belgium, Germany, Spain, Poland and Turkey;  Small and medium-sized enterprises (SME) and mid-corporate (MC) clients from the
In addition to surveying employees, we engaged ING’s senior management and topic experts via an integrated risk and materiality survey and individual interviews. The senior management survey results fed into analyses by the Non-Financial Risk, Risk & Capital Integration and Global
2 Refer to note 27 of the ING Group Consolidated Annual Accounts 2018.
E q u a to r p ri n ci p le s
Media and telecom 1.3% ● ● ● ● ● ● ●
ING is accelerating the reduction of our financing to coal power generation, reducing our exposure to close to zero by 2025. ING’s coal-financing policy comes in support of society’s transition to a low-carbon economy and the Katowice Commitment (www.ing.com/18ar031). In practice this means that ING supports new clients in the utilities sector only when their reliance on coal is 10 percent or less and they have a strategy to reduce their coal percentage to close to zero by 2025.
Overall, we expect to continue to report annual reductions in our overall credit exposure to thermal coal-related businesses. In terms of exposure to thermal coal we define the categories in the following table: in EUR million 2018 2017 Y/Y change
(DUCs) that operate various energy sources, typically including coal, gas, nuclear, and/or renewables. Within this category however, the exact energy mix used is currently not known to
The Principles for Responsible Banking (PRB) were developed by 28 of the world’s leading banks, all members of the United Nations Environment Finance Initiative (UNEP FI), with the aim to provide guidance for banks to create value for their customers, shareholders, and society. They are the first global framework to enable banks to integrate sustainability across all business areas, from strategic, to portfolio, to transaction level. An accompanying transparency and accountability mechanism will require signatories to address their most significant impacts, set public targets and report back on progress.
needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris
We will implement our commitment to these Principles through effective governance and a culture of responsible banking, demonstrating ambition and accountability by setting public targets relating to our most significant impacts.
Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.
- Consolidated Annual Accounts, Climate change risk (governance), Note 53 - Risk Management - Executive Board Charter (www.ing.com /18ar029)
A Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.
B Describe the impact of climate related risks and opportunities on the organization’s businesses, strategy, and financial planning.
- Consolidated Annual Accounts, Climate change risk, Note 53 - Risk Management - Fighting climate change, Our Business - Responsible finance, Our Business - Consolidated Annual Accounts, Climate change risk, Note 53 - Risk Management
C Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.
C Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.
- Consolidated Annual Accounts, Climate change risk (scenario analysis of climate-related transition risk), Note 53 - Risk Management
in EUR million 2018 2017 1 Affordable Housing, Food Security, Community Development and Financial Access and Microfinance are additional subcategories under Social Impact Finance, however, as of year-end 2018, our exposure to these sub-categories was nominal or zero. For a complete overview of our definitions and methodology for our Social Impact Finance indicator and subcategories, please see our Non-Financial Data Reporting Protocol available on ING.com.
1 Total leavers headcount in 2018 divided by headcount on 1 January 2018.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Non-Financial appendix number of employees Male Female Unknown Total number of employees Permanent Temporary Total
• We will reduce global residual waste by 20 percent by 2020 (base year 2014); achieved in 2017.
Given that palm oil fruits are very efficient, replacing oil palms with another type of oil crop would increase land use. We believe engagement with the sector will therefore have more impact than divestment. Through our membership of the not-for-profit Roundtable on Sustainable Palm Oil (RSPO) we aim to support our clients in addressing the challenges and opportunities.
More information can be found in our stance on Climate (www.ing.com/18ar051).
More information can be found in our stance on Defence (www.ing.com/18ar052).
Belgian media alerted ING to wheelchair users affected by the reduced accessibility of our branch and ATM network in Belgium
We invited the Interfederal Centre for Equal Opportunities (UNIA), a public service advocacy organisation in Belgium, and representatives of people with reduced mobility to a roundtable discussion. ING committed to adapt the accessibility of our branches and ATMs.
ING decided to no longer actively contribute to the reports issued by the FFG.
ING finances the global food industry. We finance the entire industry value chain, ranging from producers and traders to transport companies and those who handle and process food products. We expect clients to strive for best practice with respect to animal welfare. ING encourages clients in the animal husbandry sector to manage their livestock in line with the Five Freedoms: 1) freedom from thirst, hunger and malnutrition, 2) freedom from discomfort, 3) freedom from pain, injury and disease, 4) freedom to express normal behaviour and 5) freedom from fear and distress. We encourage clients to seek continuous improvement in livestock transportation and stewardship.
The statement ING had on its website stating it expects its clients to uphold the five animal freedoms was based on a reference to the freedoms in Dutch law.
The items excluded from the GAAP measures in 2018 are:  The €-775 million settlement agreement with the Dutch authorities on regulatory issues. Under the terms of the settlement, ING paid a fine of €675 million and €100 million for disgorgement.
Underlying result is a non-GAAP financial measure and is not a measure of financial performance under IFRS. Because underlying result is not determined in accordance with IFRS, underlying result as presented by ING may not be comparable to other similarly titled measures of performance of other companies. Note that underlying ratios are also impacted by the items above when calculated using the individual income or expense line item to which the items relate.
The publications can be downloaded on the internet: www.ing.com, button ‘Publications’. The printed version of the Annual Report on Form 20-F, in English, can be ordered here.
This Annual Report contains the Reports of the Executive Board and Supervisory Board as well as the Annual Accounts and other information for the financial year 2018 in their original language
potential consequences of a European sovereign debt crisis, (6) changes in the availability of, and costs associated with, sources of liquidity such as interbank funding, (7) changes in conditions in the credit and capital markets generally, including changes in borrower and counterparty creditworthiness, (8) changes affecting interest rate levels, (9) inflation and deflation in our principal markets, (10) changes affecting currency exchange rates, (11) changes in investor and customer behaviour, (12) changes in general competitive factors, (13) changes in or discontinuation of
This document does not constitute an offer to sell, or a solicitation of an offer to purchase, any securities in the United States or any other jurisdiction.