Bank of America’s $70 Billion bet on Sustainability

by Mark McSherry

BoA at OBP (Medium)

The Bank of America Tower at One Bryant Park, New York City, setting a new standard in sustainable commercial construction.

Solar energy in Peru and geothermal power in Kenya. Wind farms in Illinois and urban forests all over America. Green bonds and environmentally-friendly mutual funds. Bank of America, led by Irish American Brian Moynihan, is forging a $70 billion path in sustainability that leads right back to profits for shareholders.

Bank of America is almost two years into a 10-year sustainable business initiative of $50 billion to address global climate change and the ever-increasing demands on natural resources – and promote lower-carbon economic solutions.

The $50 billion commitment takes its total to $70 billion over 16 years, following the early completion of an initial $20 billion environmental action plan. The $20 billion plan was exceeded four years ahead of schedule and the bank says it delivered more than $21.6 billion in lending, equipment finance, capital markets and advisory activities, and carbon markets finance to customers and clients.

“We continuously strive to improve and evolve our sustainability practices, which are incredibly important to customers, clients, employees and the communities we serve,” says Andrew Plepler, Bank of America’s global corporate social responsibility executive.

“There’s also a distinct shareholder benefit, as more and more investors consider sustainability when diversifying portfolios”.

Bank of America says it focuses on four areas in its overall sustainability efforts: transformational finance; operations; employee programmes and philanthropy and nonprofit partnerships.

In transformational finance, the bank said it committed more than $4.5 billion in 2012 alone towards underwriting, advising on and financing “a number of transactions that are expected to increase jobs by thousands and help our clients move closer to a lowercarbon economy.”

These projects included wind energy in Illinois and geothermal energy in Kenya.

In operations, BoA has ambitious goals to reduce its greenhouse gas (GHG) emissions and paper and water consumption, as well as to “increase our diversion of waste from landfill and the percentage of our occupied space that is Leadership in Energy and Environmental Design (LEED) certified”.

In employee programs, one example of its efforts is that in 2012, more than 12,000 staff took part in the bank’s “My Environment” program, which includes moves to make staff take a specific action to reduce their environmental impact.

In philanthropy and nonprofit partnerships, BoA says it committed more than $4.5 million in environmental philanthropy in 2012 alone. More specifically, Bank of America Merrill Lynch said it is one of the biggest underwriters of renewable energy projects for the Overseas Private Investment Corporation (OPIC), the US government’s development finance institution.

In 2012, BoA provided about $300 million of financing with OPIC for two solar projects in Peru.

The bank also supplied $220 million in financing for an OPIC project in Kenya, which hopes to double the generating capacity of the Olkario Geothermal Plant, which is owned by Nevada-based Ormat Technologies.

“Bank of America viewed this issuance as an opportunity to expand its investor base and to support an important market as investors seek more socially responsible investment options…”

This expansion of the Olkario plant could mean it will provide at least five percent of Kenya’s demand for power.

Bank of America Merrill Lynch was also involved in arranging about $150 million of institutional equity financing to E.ON Climate & Renewables North America in return for an interest in its Pioneer Trail Wind Farm in Illinois.

The Pioneer Trail facility supplies more than 150MW of energy, enough to supply clean power to at least 45,000 households. BoA said Pioneer Trail could generate more than $29 million in local taxes, $8 million in salaries and make more than $50 million for landowners.

Bank of America has announced some major financial product innovations in its sustainability efforts.

At the end of 2013, the bank said it had issued a $500 million, three-year, fixed-rate “green bond.”

“This issuance of bonds is part of the company’s ongoing commitment to advance renewable energy initiatives and promote energy efficiency,” the bank said in a statement.

This is a bond in which the funds will be used to finance green investments including renewable energy and energy efficiency projects.

“Bank of America viewed this issuance as an opportunity to expand its investor base and to support an important market as investors seek more socially responsible investment options,” said the bank.

In January, 2014, a consortium of investment banks including Bank of America Merrill Lynch announced their support of the “Green Bond Principles”— which were developed with help from issuers, investors and environmental groups.

These principles encourage “transparency, disclosure and integrity” in the development of the green bond market.

They are designed to give issuers some guidance on launching a green bond and to help investors by making information available that is required to evaluate the environmental impact of their green bond investments.

Last September, Bank of America was recognized by the 2013 Dow Jones Sustainability Index (DJSI), the Carbon Disclosure Project (CDP) Global 500 Climate Change Report 2013 and the CDP S&P 500 Climate Change Report 2013 for its sustainability leadership.

The DJSI were the first global indices to track the financial performance of leading sustainability-driven companies around the world.

“We believe that corporations dealing effectively with environmental issues are poised to do well relative to their industry peers.”

Also in financial products, Bank of America’s Merrill Lynch Wealth Management and US Trust units now offer almost 200 ESGthemed (environmental, social and governance) investments to individual and institutional investors, including mutual funds.

“One of the most pronounced trends we’ve seen in recent years is the call for wealth to have a productive impact on our environment, our communities, and our society broadly, in addition to earning an investment return,” says Andrew Sieg, managing director and head of global wealth and retirement solutions for Bank of America Merrill Lynch.

“This program offers opportunities for a wide range of investors with diverse interests and beliefs to help meet this need.”

These ESG-themed investments are organized around the three themes of environmental stewardship, human capital practices and corporate governance. The environmental stewardship includes examining the use of water, alternative energy, climate change and cleantech.

Chris Wolfe, chief investment officer of Merrill Lynch Wealth Management’s Private Banking and Investment Group, explains many investors are adopting this valuesbased approach to managing their money. He cites a 2012 study from the Forum for Sustainable and Responsible Investment that said values-based investing accounted for $3.74 trillion, or about one in every eight dollars under professional management.

That was 22 percent higher than the $3.1 trillion in the same group’s 2010 report. “There is compelling evidence that investing according to one’s principles can generate competitive returns,” says Wolfe.

Bank of America’s US Trust has launched a new, proprietary investment strategy called Environmental Stewardship and Sustainability (E2S) with portfolio manager Jason Baron. This strategy finds conscientious “stewards of the environment” by analyzing energy practices and carbon footprint reduction.

“In creating this strategy, we responded directly to client demand,” says Chris Hyzy, US Trust’s chief investment officer. “We believe that corporations dealing effectively with environmental issues are poised to do well relative to their industry peers.”

This came after the launch of “Socially Innovative Investing,” also managed by Baron, for US Trust and Merrill Lynch Wealth Management. This strategy had grown to roughly $600 million in assets by March of last year.

“We have a strong commitment to environmental sustainability, which helps us better support our customers, clients and the communities where we do business…”

On the ground, one smaller but very tangible example of the commitment to sustainable investment was a recent $250,000 grant from the Bank of America Charitable Foundation to conservation organization American Forests to carry out urban forest assessments in five American cities.

It has been estimated that urban trees in the lower 48 US states remove about 784,000 tons of air pollution a year and that the United States is losing urban forest canopy at a rate of four million trees a year.

The cities selected were Asbury Park, New Jersey; Atlanta, Georgia; Detroit, Michigan; Nashville, Tennessee; and Pasadena, California.

“We have a strong commitment to environmental sustainability, which helps us better support our customers, clients and the communities where we do business,” says Cathy Bessant, chair of Bank of America’s environmental council.

“Our partnership with American Forests will help community leaders understand and respond to impacts occurring to the biological infrastructure on which our cities depend.”