Certain measures introduced by the Intervention Act were replaced, with respect to banking institutions, with measures based on the BRRD and the SRM Regulation, as described below. The
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk factors stability and minimise taxpayers’ exposure to losses. In November 2016, the EC proposed amendments to the BRRD regarding the ranking of unsecured debt instruments in national insolvency proceedings (to include a new category of ‘non-preferred’ senior debt) and to enhance the stabilisation tools with the introduction of a moratorium tool. The law that enables this new category of non-preferred senior debt was adopted in the Netherlands in December 2018.
There are certain differences between the provisions of the Intervention Act, the BRRD and the SRM
In February 2013, the EC adopted a proposal setting out the details of a financial transaction tax
States in the Council, consultation of other EU institutions, and the subsequent transposition into local law. Depending on its final form, the introduction of an FTT in the Netherlands or outside the
ING’s banking operations, which could negatively impact our operations, financial condition and liquidity. For information regarding historical regulatory costs incurred by ING, please refer inter alia to Note 28 ‘Other operating expenses’ to the consolidated financial statements.
In April 2015, ING issued USD 2.25 billion of CRD IV compliant Additional Tier 1 securities (‘AT1
Guidelines Payment could be EUR 228 million excluding interest. The terms of the AT1 Securities provide that ING can redeem the AT1 Securities only upon the occurrence of specific events (not including a determination that the tax treatment of the AT1 Securities is inconsistent with the
Income Tax Act as of 1 January 2019. Due to this change in legislation, the Group believes that there is a reduced risk that ING will be required to make an AT1 Revised State Aid Guidelines
(including non-bank or financial technology competitors). A decline in our competitive position as to one or more of these factors could adversely impact our ability to maintain or further increase our market share, which would adversely affect our results of operations. Such competition is most pronounced in our more mature markets of the Netherlands, Belgium, the rest of Western Europe and Australia. In recent years, however, competition in emerging markets, such as Latin America,
Competition could also increase due to new entrants (including non-bank and financial technology competitors) in the markets that may have new operating models that are not burdened by potentially costly legacy operations and that are subject to reduced regulation. New entrants may rely on new technologies, advanced data and analytic tools, lower cost to serve, reduced regulatory burden and/or faster processes in order to challenge traditional banks. Developments in technology has also accelerated the use of new business models, and ING may not be successful in adapting to this pace of change or may incur significant costs in adapting its business and operations to meet such changes. For example, new business models have been observed in retail payments, consumer and commercial lending (such as peer-to-peer lending), foreign exchange and low-cost investment advisory services. In particular, the emergence of disintermediation in the financial sector resulting from new banking, lending and payment solutions offered by rapidly evolving incumbents, challengers and new entrants, in particular with respect to payment services and products, and the introduction of disruptive technology may impede our ability to grow or retain our market share and impact our revenues and profitability.
Systemic risk could have a material adverse effect on our ability to raise new funding and on our business, financial condition, results of operations, liquidity, solvency position and/or prospects. In addition, such distress or failure could impact future product sales as a potential result of reduced confidence in the financial services industry.
With respect to secured transactions, our credit risk may be exacerbated when the collateral held by us cannot be or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to us. We also have exposure to a number of financial institutions in the form of unsecured debt instruments, derivative transactions and equity investments. For example, we hold certain hybrid regulatory capital instruments issued by financial institutions which permit the issuer to cancel coupon payments on the occurrence of certain events or at their option. The EC
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk factors significant increase in the size of our provision for loan losses could have a material adverse effect on our financial position and results of operations.
We may incur losses due to failures of banks falling under the scope of state compensation schemes.
Guarantee Scheme, which guarantees an amount of EUR 100,000 per person per bank (regardless of the number of accounts held). Until 2015, the costs involved with making compensation payments under the Dutch Deposit Guarantee Scheme had been allocated among the participating banks by the DNB, based on an allocation key related to their market shares with respect to the deposits protected by the Dutch Deposit Guarantee Scheme. Given our size, we may incur significant compensation payments to be made under the Dutch Deposit Guarantee Scheme, which we may be unable to recover from the bankrupt estate. Such costs and the associated costs to be borne by us may have a material adverse effect on our results of operations and financial condition. On 4 July 2015, the new EU Directive on deposit guarantee schemes had to be implemented by EU member states. As a consequence, the Dutch Deposit Guarantee Scheme has changed from an ex-post scheme, where we would have contributed after the failure of a firm, to an ex-ante scheme where we pay quarterly risk-weighted contributions into a fund for the Dutch
Deposit Guarantee Scheme. The fund is to grow to a target size of 0.8% of all deposits guaranteed under the Dutch Deposit Guarantee Scheme, to be reached in July 2024. The Dutch decree implementing the Deposit Guarantee Scheme Directive entered into force on 26 November 2015.
As a holding company, ING Groep N.V. is dependent for liquidity on payments from its subsidiaries, many of which are subject to regulatory and other restrictions.
In addition, our bank subsidiaries are subject to restrictions on their ability to lend or transact with affiliates and to minimum regulatory capital and other requirements, as well as restrictions on their ability to use client funds deposited with them to fund their businesses. Additional restrictions on related-party transactions, increased capital and liquidity requirements and additional limitations on the use of funds in client accounts, as well as lower earnings, can reduce the amount of funds available to meet the obligations of ING Groep N.V., and even require ING Groep N.V. to provide additional funding to such subsidiaries. Restrictions or regulatory action of that kind could impede access to funds that ING Groep N.V. needs to make payments on its obligations, including debt obligations, or dividend payments. In addition ING Groep N.V.’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
“ring fence” or maintain internal total loss-absorbing capacity at such entities in order to protect clients and creditors of such entities in the event of financial difficulties involving such entities. The result has been and may continue to be additional limitations on our ability to efficiently move capital and liquidity among our affiliated entities, thereby increasing the overall level of capital and liquidity required by the firm on a consolidated basis.
Ratings are important to our business for a number of reasons. A downgrade or a potential downgrade in our credit ratings could have an adverse impact on our operations and net results.
Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. Our credit ratings are important to our ability to raise capital and funding through the issuance of debt and to the cost of such financing. In the event of a downgrade, the cost of issuing debt will increase, having an adverse effect on its net results. Certain institutional investors may also be obliged to withdraw their deposits from ING following a downgrade, which could have an adverse effect on our liquidity. We have credit ratings from S&P, Moody’s Investor Service and
Because we use assumptions to model client behaviour for the purpose of our market risk calculations, the difference between the realisation and the assumptions may have an adverse impact on the risk figures and future results.
ING may be exposed to business, operational, regulatory, reputational and other risks in connection with climate change.
Climate change is a challenge which may expose ING to significant risks. The perception of climate change as a risk by civil society, shareholders, governments and other stakeholders continues to increase, including in relation to the financial sector’s operations and strategy, and international actions, such as the Paris agreement on CO2 emissions, may also result in financial institutions coming under increased pressure from such stakeholders regarding the management and disclosure of their climate risks and related lending and investment activities. Additionally, rising climate change concerns may lead to additional regulation that could increase our operating costs or negatively impact the profitability of our investments and lending activities, including those involving the natural resources sector. There may be substantial costs in complying with current or future laws and regulations relating to climate change. Any of these risks may result in changes in our business activities or other liabilities or costs, including exposure to reputational risks, any of which may have a material and adverse impact on our business, results of operation or financial condition.
As part of their responses to the financial crisis of 2008, the EC and national governments throughout Europe have introduced and are expected to continue introducing various legislative initiatives that aim to ensure that financial institutions’ remuneration policies and practices are consistent with and promote sound and effective risk management, and impose restrictions on the remuneration of personnel, with a focus on risk alignment of performance-related remuneration.
Nevertheless, the actuarial assumptions may differ significantly from actual results due to changes in market conditions, economic and mortality trends and other assumptions. Any changes in these assumptions could have a significant impact on our present and future liabilities to and costs associated with our defined benefit retirement plans.
Financial reporting irregularities involving other large and well-known companies, possible findings of government authorities in various jurisdictions which are investigating several rate-setting processes, notifications made by whistleblowers, increasing regulatory and law enforcement scrutiny of ‘know your customer’ anti-money laundering, tax evasion, prohibited transactions with countries or persons subject to sanctions, and bribery or other anti-corruption measures and antiterrorist -financing procedures and their effectiveness, regulatory investigations of the banking industry, and litigation that arises from the failure or perceived failure by us to comply with legal, regulatory, tax and compliance requirements could result in adverse publicity and reputational harm, lead to increased regulatory supervision, affect our ability to attract and retain customers and maintain access to the capital markets, result in cease and desist orders, claims, enforcement actions, fines and civil and criminal penalties, other disciplinary action or have other material adverse effects on us in ways that are not predictable. Some claims and allegations may be brought by or on behalf of a class and claimants may seek large or indeterminate amounts of damages, including compensatory, liquidated, treble and punitive damages. See ‘—ING is exposed to the risk of claims from customers who feel misled or treated unfairly because of advice or information received’. Our reserves for litigation liabilities may prove to be inadequate. Claims and allegations, should they become public, need not be well founded, true or successful to have a negative impact on our reputation. In addition, press reports and other public statements that assert some form of wrongdoing could result in inquiries or investigations by regulators, legislators and law enforcement officials, and responding to these inquiries and investigations, regardless of their ultimate outcome, is time consuming and expensive. Adverse publicity, claims and allegations, litigation and regulatory investigations and sanctions may have a material adverse effect on our business, revenues, results of operations, financial condition and/or prospects in any given period. For additional information, see the ‘Financial Economic Crime’ paragraphs in the ‘Risk categories’ part within the Compliance Risk in the Risk Management section in the annual report of
Any of these scenarios could have a material adverse effect on our business and results of operations.
 Our share price has experienced periods of volatility in the past, and the price and trading volume of our shares may be subject to significant fluctuations in the future, due, in part, to changes in our actual or forecast operating results and the inability to fulfil the profit expectations of
0.44 per ordinary share and will be paid in cash. However, there can be no assurance that we will pay dividends in the future.
Because we are incorporated under the laws of the Netherlands and many of the members of our Supervisory and Executive Board and our officers reside outside of the United States, it may be difficult to enforce judgments against ING or the members of our Supervisory and Executive
Sustainability department, to business units and subject-matter experts who help develop ING’s policies, programmes and targets in response to sustainability-related risks and opportunities, in line with our global Sustainability Direction. Progress on identified priorities is communicated regularly to the Management Board Banking and to external stakeholders through ING’s Quarterly
The responsibility for our various sustainability targets lies either with the MBB member responsible for that specific area, or with the MBB as a whole. For example, responsibility for our ambition to double our climate finance portfolio by 2022 from 2017 lies with the MBB member in charge of
The outcomes of our materiality surveys were complemented by global peer, media, trend and regulatory analyses.
1 Category totals may deviate from the sum of sub-categories by margins of 0.1 due to rounding-up.
E n vi ro n m e n ta l c o m p lia n ce
* Environmental and Social Risk (ESR) framework policies in effect in 2018.
In addition, we acknowledge that coal is part of the energy mix of diversified utility companies
ING’s power generation lending portfolio to Single Energy Sources (SES) clients, transactions supporting a particular energy source or utility companies operating one single energy source, is
EUR 7.4 billion at YE 2018. Within this category, coal-fired power accounts for some 2.9 percent
Overall, ING’s power generation lending portfolio (DUCs and SES) is EUR 9.7 billion at YE 2018. The chart below represents an overview of the distribution of energy sources.
The Principles are out for global public consultation until May 2019 and will become available for signature in New York in September 2019, during the week of the UN General Assembly. Until then banks and stakeholders can join this forward-looking coalition by becoming official endorsers of the
We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities, products and services.
- Our material topics -Our Environmental and Social Risk (ESR) section in the Risk and Capital Management chapter -Our Environmental and Social Risk (ESR) Framework (www.ing.com/18ar035)
-Our Value Creation Model in Our Strategy and How We Create Value -Our Sustainability Direction (www.ing.com/18ar034)
We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
-Stakeholder engagement and client engagement on human rights, p.67-75 of ING´s Human Rights Report 2018
-Taskforce on Climate-related Financial Disclosures (TCFD) alignment index in Non-financial Appendix -Responsible Finance performance reporting in Non-financial Appendix -Sustainable Assets under Management (SAuM) performance reporting in Non-financial Appendix
ING and its clients to be able to align fully with the recommendations. In fact, it is only as our clients start to disclose more completely that we can use that data for our own analyses and disclosures. However, we are not waiting for a perfect world before we take action.
- Consolidated Annual Accounts, Climate change risk, Note 53 - Risk Management - Consolidated Annual Accounts, Climate change risk (scenario analysis of climate-related transition risk), Note 53 - Risk Management
- Environmental and Social Risk, Risk and capital management - Environmental and Social Risk Framework, Note 53 - Risk Management - Consolidated Annual Accounts, Climate change risk, Note 53 - Risk Management
- Environmental and Social Risk, Risk and capital management - Managing risks to enable a sustainable business while strengthening culture and resilience,
A Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.
Circular Economy was nominal. For a complete overview of our definitions and methodology for our Climate Finance indicator and sub-categories, please see our Non-Financial Data Reporting Protocol available on ING.com.
Netherlands. Sustainable assets under management (SAuM) can be dedicated portfolios, structured products or investment funds, and cover all asset classes. The following chart demonstrates the growth in our total SAuM in the three years to December 2018.
Our Human Capital return on investment (HC ROI), which shows ING’s profitability in relation to total employee costs, remained stable in the past two years. In 2018, our HC ROI indicator totalled EUR
2.51, compared to EUR 2.51 in 2017, EUR 2.59 in 2016 and EUR 2.48 in 2015.
1 Refer to note 27 of the ING Group Consolidated Annual Accounts 2017 in number of trainings completed x1,000 2018 2017 2016
On-the-job training NA 0.2 0.6 1 A simplified breakdown as of 2018 (classroom, blended and online) reflects increased use of single sign-in learning platforms.
Our activities impact the environment in which we operate - both directly, through our use of buildings, IT systems and business travel, but also indirectly, through our lending portfolio and our procurement supply chains. We are committed to reducing this impact and work closely with clients and suppliers to take advantage of opportunities within the low-carbon and resourceefficient economy of the future. Our Environmental Approach, an ING policy document, describes how we are managing our direct and indirect environmental impacts as well as how we mitigate risks and create and seize opportunities. The policy underpins our 2020 targets for improving our operational eco-efficiency, namely: • We will reduce our CO2e emissions by 50 percent by 2020 (base year 2014).
Our objectives and targets concerning our operational environmental impact are managed through the ING Environmental Programme, which has established a robust Environmental Management
System (EMS) that ensures effective processes and continual improvement of our performance. In 2018, ING maintained its ISO14001 EMS certification for head-office operations in the Netherlands.
We also maintained carbon-neutral operations in 2018 by offsetting emissions caused by business travel and grey energy use. We offset 100 percent of our operational carbon emissions through the purchase of Voluntary Carbon Units (VCUs), with the majority originating from a high impact REDD+ project in Borneo. This project preserves carbon-dense tropical peat swamp by helping to halt deforestation of roughly 47,000 hectares of forest which were originally slated for conversion to palm oil plantations. The project focuses on both community development and biodiversity conservation, particularly the protection of the endangered Borneo orangutan. In order to deliver on its goals, the project actively engages local communities to improve food security, water conservation, income opportunities, health care and education. In addition to conservation, the project also engages in land enrichment activities with a goal to plant one million trees. The Rimba
Raya project is verified and validated to the Verified Carbon Standard (VCS), and has achieved Gold
4 Scope 3 comprises emissions from our business travel by air and car. While scope 3, category 15 (emissions through lending and investments) is material to ING’s indirect emissions footprint, due to measurement complexity and lack of quality data,
Non-eco-labelled paper 93 50 64 in tonnes 1 Residual waste is the difference between total and recycled waste. In 2018, we recorded a significant increase in residual waste in Turkey, Ukraine and France in thousands of m3
Global Compact, the OECD Guidelines for Multinational Enterprises and the Global Reporting
We define stakeholders as individuals or organisations who may be directly or indirectly impacted by ING’s activities or individuals or organisations who may have an impact on ING’s activities or ability to provide products and services. ING identifies, selects and continually monitors our stakeholders. Stakeholders who temporarily manifest themselves on certain topics can also have a relevant input. Throughout the year, challenges and issues are discussed with and brought to our attention by various stakeholders. In the table below, we provide a snapshot of some key issues addressed in 2018.
Palm oil is used in a myriad of products, ranging from toothpaste, soap and cosmetics to chips and biscuits. Demand for these products continues to grow, posing social and environmental challenges in palm oil sourcing countries. The more prominent issues related to palm oil production include deforestation, animal endangerment, the displacement of local communities and working conditions.
On 3 September 2018, the Dutch Banking Association (NVB) announced it had established that the quality of the research conducted by the FFG in the
More information can be found in our statement on the issue (www.ing.com/18ar054).
NGO Fair Finance Guide; Banks in the Netherlands; Dutch Banking Association (NVB)
The mining, oil and gas sectors source the materials for products and services such as energy and transportation that we all need on a daily basis. We believe companies should respect universal human rights and we are aware of the challenges in the extractives industry. We have a human rights policy in place and participate in human rights working groups that help us improve our understanding of the issues specific to the sectors we finance. We also play a prominent role in the Dutch Banking Covenant on Human Rights. Our approach as a financier is to engage with our client as soon as we become aware of potential human rights issues. We prefer engagement over outright exclusion as engagement can help influence our clients’ decisions. Should there be no opportunity or will for improvement, then we may exclude the client from finance. The FFG recommends more transparency on engagement, but at the same time admits that commonly accepted engagement standards have not yet been set. The topic of engagement features in discussions at the Banking Covenant and ING intends to continue the debate.
ING makes choices that do not meet FFG’s expectations. We understand that civil society organisations are concerned about the climate, human rights, animal welfare and the environment. ING shares these concerns. We highly appreciate the role that these organisations play in urging banks to develop extensive environmental and social policies that address these concerns. However, demanding that banks exclude certain activities would mean that key sectors in society could no longer be financed. Activities for which there are no viable alternatives yet include coking coal (steel production); oil
The FFG published a case study on poultry and pork investments. After the report’s release the FFG
In October 2018, ING in Belgium announced fee increases for a number of services. The fee change most broadly covered in local media was a new 0,50€ charge per cash withdrawal at non-ING ATMs.
'Varkens in Nood' submitted a complaint against ING’s use of the term 'five animal freedoms’.
ING reasoned that therefore a permit issued to a pig farm would entail compliance the five animal freedoms. The watchdog ruled that given that deviation from the law occurs in practice, ING’s statement was deemed too bold. Acquiring a farm permit should not be interpreted as compliance with the five animal freedoms. As a result ING revised the language in its statement.
Throughout 2018 ING held meetings with the NCP and the representatives of the NGOs Oxfam Novib, Greenpeace, BankTrack and Friends of the Earth
IFRS the following: special items; the impact of divestments and Legacy Insurance.
 Result of Insurance Other, reflecting the result on the warrants on Voya and NN Group shares, amounting to EUR 90 million after tax.
Below table shows a comparison of GAAP versus non-GAAP of the most important measures used by ING.
Total operating expenses (continuing operations) (f) 10,682 9,829 10,614 -/- Operating expenses from special items 775 1,157
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International Financial Reporting Standards (IFRS) and the application thereof, (18) conclusions with regard to purchase accounting assumptions and methodologies, and other changes in accounting assumptions and methodologies including changes in valuation of issued securities and credit market exposure, (19) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (20) changes in credit ratings, (21) the outcome of current and future legal and regulatory proceedings, (22) operational risks, such as system 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, (23) risks and challenges related to cybercrime including the effects of cyber-attacks and changes in legislation and regulation related to cybersecurity and data privacy, (24) the inability to protect our intellectual property and infringement claims by third parties, (25) the inability to retain key personnel, (26) business, operational, regulatory, reputation and other risks in connection with climate change, (27) ING’s ability to achieve its strategy, including projected operational synergies and cost-saving programmes and (28) the other risks and uncertainties detailed in this annual report of ING Groep N.V. (including the Risk Factors contained therein) and ING’s more recent disclosures, including press releases, which are available on www.ING.com, (29) this annual report contains inactive textual addresses to internet websites operated by us and third parties. Reference to such websites is made for information purposes only, and information found at such websites is not incorporated by reference into this annual report. ING does not make any representation or warranty with respect to the accuracy or completeness of, or take any responsibility for, any information found at any websites operated by third parties. ING specifically disclaims any liability with respect to any information found at websites operated by third parties. ING cannot guarantee that websites operated by third parties remain available following the filing of this annual report or that any information found at such websites will not change following the filing of this annual report. Many of those factors are beyond ING’s control.