We operate in highly regulated industries. Changes in laws and/or regulations governing financial services or financial institutions or the application of such laws and/or regulations governing our business may reduce our profitability. We are subject to detailed banking laws and government regulation in the jurisdictions in which we conduct business. Regulatory agencies and supervisors have broad administrative power and enforcement capabilities over many aspects of our business, which may include liquidity, capital adequacy, permitted investments, ethical issues, money laundering, anti-terrorism measures, privacy, recordkeeping, product and sale suitability, marketing and sales practices, remuneration policies, personal conduct and our own internal governance practices. Also, regulators and other supervisory authorities in the European Union (‘EU’), the United States (‘US’) and elsewhere continue to scrutinise payment processing and other transactions and activities of the financial services industry through laws and regulations governing such matters as money laundering, anti-terrorism financing, tax evasion, prohibited transactions with countries or persons subject to sanctions, and bribery or other anti-corruption measures.
Single Supervisory Mechanism In November 2014, the European Central Bank (‘ECB’) assumed responsibility for a significant part of the prudential supervision of banks in the eurozone, including ING Bank, following a year-long preparatory phase which included an in-depth comprehensive assessment of the resilience and balance sheets of the biggest banks in the eurozone. ING Bank was among the seven Dutch institutions covered by the assessment (out of 130 institutions overall). While the ECB has assumed the supervisory tasks conferred on it by the Single Supervisory Mechanism (‘SSM’) Regulation, the DNB will still continue to play a big role in the supervision of ING Group and ING Bank.
If the Group is unable to comply with requirements imposed under IGAs or otherwise comply with FATCA (including as a result of local laws in non-IGA countries prohibiting information-sharing with the IRS, as a result of contracts or local laws prohibiting withholding on certain payments to account holders or other investors, or as a result of the failure of account holders or other investors to provide requested information), certain payments to the Group may be subject to withholding under FATCA. Payments made with respect to certain products offered by members of the Group may also be or become subject to withholding under FATCA. The possibility of such withholding and the need for account holders and investors to provide certain information may adversely affect the sales of certain of the Group’s products. In addition (i) compliance with the terms of IGAs and with FATCA, with any regulations or other guidance promulgated thereunder or any legislation promulgated under an IGA, and (ii) offering products subject to US withholding, may substantially increase the Group’s compliance costs. Because legislation and regulations implementing FATCA and the IGAs remain under development, the future impact of this law on the Group is uncertain. Failure to comply with FATCA and other US withholding tax regulations could harm our reputation and could subject the Group to enforcement actions, fines and penalties, which could have a material adverse effect on our business, reputation, revenues, results of operations, financial condition and prospects. For additional information with respect to specific proceedings, see Note 45 ‘Legal proceedings’ to the consolidated financial statements.
Because we operate in highly competitive markets, including our home market, we may not be able to increase or maintain our market share, which may have an adverse effect on our results of operations. There is substantial competition in the Netherlands and the other countries in which we do business for the types of wholesale banking, retail banking, investment banking and other products and services we provide. Customer loyalty and retention can be influenced by a number of factors, including brand recognition, reputation, relative service levels, the prices and attributes of products and services, scope of distribution, credit ratings and actions taken by existing or new 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, Asia and Central and Eastern Europe, has also increased as large financial services companies from more developed countries have sought to establish themselves in markets which are perceived to offer higher growth potential, and as local institutions have become more sophisticated and competitive and proceeded to form alliances, mergers or strategic relationships with our competitors. The Netherlands is our largest market. Our main competitors in the banking sector in the Netherlands are ABN AMRO Bank and Rabobank. Competition could also increase due to new entrants 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. 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.
Products distributed through person-to-person sales forces have a higher exposure to such claims as the sales forces provide face-toface financial planning and advisory services. Complaints may also arise if customers feel that they have not been treated reasonably or fairly, or that the duty of care has not been complied with. While a considerable amount of time and resources have been invested in reviewing and assessing historical sales practices and products that were sold in the past, and in the maintenance of risk management, legal and compliance procedures to monitor current sales practices, there can be no assurance that all of the issues associated with current and historical sales practices have been or will be identified, nor that any issues already identified will not be more widespread than presently estimated.
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 • general market circumstances.
There can be no assurance that we will pay dividends on our Ordinary Shares in the future. It is ING’s policy to pay dividends in relation to the long-term underlying development of cash earnings. Dividends can only be declared by shareholders when the Executive Board considers such dividends appropriate, taking into consideration the financial conditions then prevailing and the longer-term outlook. The Executive Board proposes to pay a total dividend of EUR 2,603 million, or EUR 0.67 per ordinary share, over the financial year 2017. This is subject to the approval of shareholders at the Annual General Meeting in May 2018. Taking into account the interim dividend of EUR 0.24 per ordinary share paid in August 2017, the final dividend will amount to EUR 0.43 per ordinary share and 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 Boards or our officers. Most of our Supervisory Board members, our Executive Board members and some of the experts named in this Annual Report, as well as many of our officers are persons who are not residents of the United States, and most of our and their assets are located outside the United States. As a result, investors may not be able to serve process on those persons within the United States or to enforce in the United States judgments obtained in US courts against us or those persons based on the civil liability provisions of the US securities laws.
Sustainability governance Our Global Head of Sustainability reports directly to the Vice-Chairman of the Management Board Banking of ING Bank. Via the Global Sustainability department, responsibilities are cascaded through various business units to subject-matter experts who help develop ING’s policies and goals in response to sustainability-driven 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 Reports. Climate resilience is one of our two main strategic focus areas within our new Sustainability Direction. Within this focus area, we are addressing both climate-related risks and opportunities across our business and have set various related ambitions. One such ambition which addresses climate-related opportunities is to double our climate finance portfolio by 2022 against 2017 totals. Responsibility for this ambition falls with the Board member responsible for Wholesale Banking and is cascaded throughout the organisation in the form of KPIs for deal teams. Another ambition, which addresses climate-related risk, is to reduce our exposure to coal to close to zero by 2025. Our Management Board is responsible for ensuring that this target is translated to policy and is adhered to within our risk processes. The Board’s responsibility for social and/or environmental risks and opportunities is also formalised in our Executive Board Charter, available on www.ing.com/17ar11.
• We aim to achieve a number one net promoter score (NPS) ranking compared to our main competitors in each of our retail banking markets.
• By year-end 2017, the Power for Youth partnership reached over 206,000 adolescents in six developing countries.
• At the end of 2017, sustainable assets under management (SAuM) for customers were EUR 4,752 million, up from EUR 3,306 million in 2016.
• As at year-end 2017, our baseline reporting year, we recorded lending outstandings of EUR 5.5 billion to Industry Environmental, Social and Governance (ESG) leaders, EUR 14.6 billion to companies and sectors in our Climate Finance portfolio and EUR 0.5 billion in Social Impact Finance.
• We aim to invest further in the personal and professional development of our employees.
• Our share of renewable electricity increased to 95% of our total global electricity use, compared to 91% a year earlier.
The results of stakeholder dialogues were complemented with a global media, trend and peer analysis. The final results were validated by experts from ING’s Global Sustainability department and approved by Management Board Banking.
Economic value generated ING contributes to the economies of more than 40 countries where we operate. In addition to this, we aim to align the disclosures with the Global Reporting Initiative (GRI) Standards.
ING Bank Governments Financial institutions Governments 9.1% Bonds – Germany 1.3% United Kingdom 2.0% Financial institutions 14.2% Bonds – Netherlands 1.0% Germany 1.0% Corporates 35.7% Bonds – ROW3 4.3% Spain 1.1% Consumer lending 39.8% Other4 2.4% China 1.3% Other2 1.3% Netherlands 0.3%
ING Bank credit risk portfolio per economic sector and application of ESR framework1 & Responsible Finance strategy in percentage
& logistics 3.9 • • • • • • • •
& personal care 2.5 • • • • • • • • • - General industries 2.3 • • • • • • • - Builders & contractors 1.8 • • • • • - Chemicals, health
- Media + telecom 1.3 • • • • • • • •
As our risk assessment processes are decentralised, each front-office team must be highly familiar with ING’s Environmental and Social Risk framework and, in particular, Equator Principles III (EPIII). Hence, ING makes significant investment in internal training programmes to help front office and risk management staff in assessing the environmental and social risk under EPIII.
External Independent Review A B C Total A B C Total 1 Category A – Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented; Category B – Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; and Category C – Projects with minimal or no adverse environmental and social risks and/or impacts.
Implementing the TCFD Recommendations Climate change risks and opportunities ING is committed to working with clients and stakeholders to support a smooth, orderly and just transition. We recognise that the projects and businesses we finance could potentially have a negative impact on the environment. That is why we employ strict ESR policies, where climate-related risks are embedded, and have set the ambition to grow our climate finance portfolio. We have also taken a firm role in advocating for change and transparency, for example via endorsement of the recommendations of the Taskforce on climate-related Financial Disclosures (TCFD), set up by the Financial Stability Board.
The TCFD structured its recommendations around four core elements of the way in which organisations operate: governance, strategy, risk management, and metrics and targets. The voluntary guidance applies to large corporates in all sectors, with supplemental guidance for the financial sector including banks, insurance, asset managers and owners, and non-financial but potentially highimpact sectors including energy, transportation, materials and buildings, and agriculture, food and forestry. The recommendations are intended to encourage transparent disclosure of current and potential climate-related risks in organisations’ annual statements. The disclosure of forward-looking indicators will better inform financial markets of short-, medium- and long-term risks related to climate change.
Transition risk is not the only concern facing the market. The physical risks inherent to climate change must be avoided. That is why ING supports the goals of the Paris Agreement. ING is continuing the effort to measure the climate impact of its lending portfolio. In 2016, we ran a pilot with an external consultant to calculate the emissions related to two specific lending portfolios and to estimate the emissions related to our total lending services portfolio within Wholesale Banking. As reported in our 2016 annual report, the results were not accurate enough to be published and there is still no market standard for measuring financed emissions . ING therefore intensified the search for the right metrics and methods and has decided to partner with the 2˚ Investing Initiative to test a new approach that could allow science-based target setting in the years to come. Furthermore, ING is one of the main sponsors of the Science-based Targets Initiative working group to support the development of methods for the Financial Sector in partnership with the World Resources Institute (WRI), World Wildlife Fund (WWF) and CDP.
A Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term.
Risk and capital management, Environmental and Social Risk Management, p. 46
C Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.
Number of trainings completed x 1,000 in numbers of trainings completed
On-the-job training 0.2 0.6 5.4 1 The decline in the number of trainings is attributed to the increased use of learning content portals. These portals support single sign-on for multiple trainings.
Leavers 1 Total leavers headcount in 2017 divided by headcount on 1 January 2017.
Percentage of employees that have undergone a performance management process (headcount) in percentage of employees 2017 2016 2015
In EUR million Per FTE In EUR million Per FTE In EUR million Per FTE
1 Refer to note 25 of the ING Group Consolidated Annual Accounts 2017.
FT / PT status Perm / Temp on ING contract Full-time 48,397 48,309 48,109 Permanent 52,324 53,218 53,454
Sickness and absenteeism (headcount) in percentage of employees 2017 2016 2015
Total number of employees by ING employment contract (permanent and temporary), by gender (headcount)
Donations business in-kind 721 847 615 Facilitated by ING Donations customers 1,091 740 964
2 Adolescence is the period in human growth and development that occurs from ages 10 to 19. 3 The reported number consists of adolescents reached from January 2017 to June 2017. 4 The reported number consists of adolescents reached from July 2015 to December 2015.
Total residual waste 1,5762 3,0323 2,870 1 Residual waste is total waste minus the waste that is recycled.
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 continually monitors who our stakeholders are and identifies and selects 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 the key issues from 2017.
At ING, our procurement policies and procedures require us to take into account the social and environmental aspects of the products we procure as well as the attitude of the supplier towards sustainability. We have implemented, globally, a supplier qualification (SQ) process that helps us determine the levels of social, environmental and financial risks associated with a supplier, specifically related to human rights, including forced and child labour, fair labour standards, environmental protection, and anti-corruption1. Once suppliers pass the SQ process, they are qualified to become ING suppliers and the ING Procurement Sustainability Standards (IPSS) apply. Adherence to IPSS is then monitored via our partnership with EcoVadis Sustainability Monitoring. For more information on our Sustainable Procurement Program, please see our Environmental Approach. In 2016, we made the following commitments: • We will procure 100% green electricity for all ING buildings worldwide by 2020. • We will pilot 20 circular purchasing projects. • We will conduct sustainability performance assessments for 450 suppliers by end of 20172.
In 2016, we reported on this issue, which was resolved in 2017. We continually tried to use our influence to resolve this issue in a way that all parties could be satisfied with. We met with members of the Standing Rock Sioux Tribe on 10 February 2017 and we shared our willingness to either continue trying to positively influence the course of the project, or to distance ourselves by selling our stake in the loan. In the months after, ING reached an agreement for the transfer of its loan to the Dakota Access pipeline. The sale has the full support of the Standing Rock Tribe.
Indonesia • Punta Catalina, a coal-fired power plant in the Dominican
Fair Finance Guide report In 2017, Fair Finance Guide (FFG) Belgium published an update of the guide for Belgium. The results for ING Belgium were based on research conducted by FFG Netherlands a year earlier. FFG’s annual update benchmarks banks’ policies against a set of expectations. FFG concluded that ING had made improvements.
Financial literacy The 2017 ING International Survey shows: More than 50% of Germans call themselves financially illiterate.
ING provides compact financial knowledge – suitable for everyday use and very easy to understand. It covers all areas – from saving to investing to retirement plans. New video lessons offer help on financial questions and helpful tips on how to make more of one’s money. These tips are from independent financial experts, the consumer advocate H. J. Tenhagen and the renowned ZEIT Academy.
Low interest rate Many banks are offering virtually no interest on savings deposits - a huge challenge for consumers who want to save and set money aside for major purchases and retirement.
Nuclear weapons and cluster munitions PAX issued two reports. The first was on investments made in companies producing cluster munitions and the second on banks’ involvement with nuclear-weapon producing companies. Overall, PAX was positive about ING. They commented that ING should apply its exclusion policy comprehensively to all its markets and to all its financial products, including funds following an index. In both reports, ING was again incuded in the runners-up category.
Our elaborate stance towards the defence industry and nuclear weapons and cluster munitions in particular can be found on our webpage Our Stance: www.ing.com/17ar23
More information can be found on our webpage Our Stance: www.ing.com/17ar24
Climate change In partnership with 28 organisations around the world, BankTrack, Rainforest Action Network, Sierra Club and Oil Change International published their annual Fossil Fuel Finance Report Card for 2017 reporting on 32 banks and their involvement in specific types of fossil fuels.
Climate change is an tremendous unparalleled challenge for the world and it is one in which banks, including ING, have a role to play.
ING Group evaluates its results using a financial performance measure called underlying result. Underlying result is used to monitor the performance of ING Group at a consolidated level and by segment. The Executive Board and Management Board Banking consider this measure to be relevant to an understanding of the Group's financial performance because it gives better insight into the commercial developments of the company. Underlying result is derived by excluding from IFRS the following: special items; the impact of divestments and Legacy Insurance.
Special items include items of income or expense that are significant and arise from events or transactions that management consider distinct from the regular operating activities. These may either be recurring or non-recurring in nature but must be of a significant size to qualify as a special item. Disclosures on comparative periods also reflect the impact of current period's divestments. Legacy Insurance consists of the intercompany eliminations between ING Bank and NN Group until deconsolidation of NN Group at the end of May 2015, the results from Insurance Other and the results from discontinued operations. Insurance Other reflects (former) insurance related activities that are not part of the discontinued operations.
The items excluded from the GAAP measures in 2017 are: • Tax charge of EUR 121 million at ING Australia Holdings Ltd related to the years 2007-2013, for which a full reimbursement is expected to be received from NN Group. Although the bottom-line impact for ING Group was nil, it affected both the ‘taxation’ and ‘other income' lines.
Net result attributable to ING Group’s shareholders (a) 4,905 4,651 4,010 -/- Net result attributable to ING Group’s shareholders from discontinued operations 441 –456
Total operating expenses (continuing operations) (f) 9,829 10,614 9,326 -/- Operating expenses from divestments/special items 1,157 77 -/- Operating expenses Insurance Other and eliminations ING Bank/NN Group 3
Projects related to the integration of Record Bank in Belgium are still subject to regulatory approval.