A common definition for business sustainability is how well companies manage their finances while also improving social and environmental conditions, or more succinctly, "profits, people and planet".
Herry Cho is head of sustainable finance for Asia-Pacific at ING.
Companies today increasingly recognise that managing the "triple bottom line" is not simply a moral imperative, but also good business.
"There is an increasing recognition that sustainability is not a nicety anymore, but should be a part of one's business strategy, even if a [company] is right at the beginning of its sustainability journey," said Herry Cho, head of sustainable finance for Asia-Pacific at ING.
Since last year, Ms Cho has led a team responsible for the origination and execution of sustainable finance transactions for ING in Asia. This includes green, social and sustainability bonds and sustainability improvement loans, as well as green loans.
In traditional finance, investors and lenders primarily focus on financial metrics such as profitability, dividend performance and creditworthiness in evaluating transactions.
Sustainable finance adds benchmarks for environmental, social and governance issues. According to the Global Sustainable Investment Alliance, in 2016 some $22.9 trillion in assets worldwide was managed under responsible investment strategies, an increase of 25% from two years earlier.
Just as there are companies such as Moody's and Standard and Poor's to assign credit ratings, companies such as MSCI, Sustainalytics and ISS-Oekom offer sustainability ratings, Ms Cho said.
Under a sustainability improvement loan, a credit facility is directly linked to the borrower's sustainability trajectory: the interest margin of the loan will drop if the borrower is able to meet ambitious predetermined sustainability benchmarks that are annually reviewed by an independent sustainability rating agency.
In March this year, Singapore-listed agribusiness giant Olam International announced Asia's first sustainability-linked club loan. The three-year, $500-million credit facility ties financing costs to Olam's success in meeting sustainability targets, with its efforts to be assessed by Sustainalytics. ING was the sustainability coordinator for the deal, with 14 other international and regional banks joining the transaction.
Growing demand for sustainable finance on the investor side also conveys benefits, as institutional investors increasingly set aside a larger portion of their portfolio for deals leading to higher demand for green, social or sustainability bonds.
"There's a lot more support now for deals that are green, and the trend is set to grow," Ms Cho said. "Take the euro bond market, for example, where there is a sizeable socially responsible investor base. You see some issuers being told by investors that if their bond was a green bond, more capital would have been made available in comparison with a plain vanilla bond."
While Europe leads the market in terms of sustainable finance, interest is growing in Asia.
Ms Cho said the Chinese government has taken a strong position in pushing for sustainability and action against climate change, encouraging banks and state enterprises to move away from polluting industries towards businesses with a positive impact.
In Japan, an estimated 10% of domestic equity is held in sustainable assets, while both Singapore and Hong Kong are competing to become green or sustainable finance hubs for the region.
In Southeast Asia, green bond standards were issued by a subcommittee of the Asean Capital Markets Forum to encourage issuers interested in tapping the growing market.
Ms Cho, who also chairs the Sustainable Finance Collective Asia, an online funding platform for financial institutions to finance sustainable projects together, said ING views sustainability as critical for both the bank and its clients.
"It's about building financial resilience, both for the bank and its clients," she said. "Future-proofing the bank's business means we are future-proofing our clients' business."
In February, ING joined the European Investment Bank to create a €300-million facility to support green investments for the European shipping sector, such as retrofitting engines to reduce emissions or installing new ballast systems to prevent water contamination between oceans.
Ms Cho said funding costs under the programme will be lower than if companies otherwise borrowed direct from the market.
"There's a lot more support now for deals that are green then those that aren't," she said.
Steve Briones, country manager for ING in Thailand, said there is considerable interest in sustainable financing among local companies.
"We see a lot of interest, but there remains a knowledge gap," he said. "Companies are asking about how to move forward, about the mechanism on how to raise capital. Over the next two to five years, I think we will see quite a change in how Asian investors look [at sustainable finance]."
