As businesses adopt real action toward sustainable resource management, the role of green financing becomes even more important in accelerating the transition to a low-carbon economy. I recently sat down with Alex Liftman, Global Environmental executive at Bank of America, to discuss his company’s role in providing capital and new financing options to sustainable businesses.
Alex, Bank of America has a strong record of supporting environmental initiatives and that is evident in your second environmental business commitment of $125 billion to direct capital to low-carbon, sustainable business activities. Why is the bank focused in this area?
Bank of America has long understood that climate change poses a risk to our clients, employees, communities and our company itself. But with that risk, also comes opportunity – such as providing capital to breakthrough new technologies, helping to finance the increased adoption of resource efficiency and renewable energy, and supporting the infrastructure that will make our communities more resilient.
Along with our financial services peers, we know our company has an important role to play and a responsibility to help accelerate the transition to a low-carbon, sustainable economy. We’re doing this through our own corporate initiatives, but more importantly, by facilitating the deployment of significant amounts of capital through our $125 billion environmental business initiative. We work closely with our clients, like ENGIE Impact and its parent, ENGIE, to help them meet their own environmental and sustainability goals.
This is also good business for us, evidenced by the fact that we are doing nearly eight times the business we were doing just ten years ago. We are achieving the perfect trifecta: supporting our clients’ needs, growing business for our company, while addressing a significant global issue. These efforts are also creating greater economic and social impact by helping to fund new businesses, build infrastructure, expand innovation, and create a more sustainable workforce.
Meeting the aims of the Paris Climate Agreement and the United Nations Sustainable Development Goals requires focus and collaboration among the private sector, public sector, nonprofits, and other stakeholders. Bank of America is in a unique position to use our global scale, reach and influence to be a leader in bringing the private sector together, while deploying our capital to invest in low-carbon, sustainable technologies.
Why is the business sector increasingly using products like green bonds and/or tax equity in the U.S. for solar or wind, to support their energy and sustainability programs?
Being sustainable and managing to a new climate future means creating and finding innovative new financial solutions to address this global issue. It means building on innovation to rethink our global energy system to be cleaner and more efficient while doing so in a way that is attractive for mainstream investors.
Companies, municipalities and many other institutions are already thinking about ways to make their operations more efficient, sustainable and climate resilient. But they have traditionally struggled with how to finance those activities. Green bonds enable entities, like our client companies, to access the $100 trillion bond market, while U.S. tax equity structures enable both companies developing renewable energy and those wishing to purchase it for their operations.
Green bonds play an important role because the proceeds are directed toward environmental projects. In 2013, Bank of America Merrill Lynch helped to create (with peer institutions) and co-author the Green Bond Principles, a voluntary set of guidelines and standards meant to bring integrity to this market where proceeds help to directly finance environmental projects. We are focused on structuring and underwriting green bonds from issuers from diversified sectors as a means of expanding and developing the market for environmentally driven financing.
We are proud to play a significant role in developing these markets and to have top market position in both U.S. tax equity investment in wind and solar, as ranked by Bloomberg New Energy Finance, and green bond underwriting. Our tax equity business, which is focused on U.S. wind and solar projects, is a business we helped to shape and provides financing to serve renewable energy needs. This is where a renewable energy developer (sponsor) often cannot efficiently utilize U.S. tax attributes (tax credits/depreciation) due to limited U.S. taxable income. Therefore, typical capital structure for U.S. renewables energy projects will introduce tax equity capital alongside sponsored equity investment.
Since 2007, we’ve been responsible for renewable energy tax equity financing for approximating $2 billion in solar, representing over one gigawatt of generated solar power and $6 billion in wind. This has resulted in three large utility scale solar farms, hundreds of commercial solar installations, nearly 100,000 residential solar installations and with 82 wind farms totaling over 12 gigawatts of capacity in the U.S.
These are just two examples of the financial tools and products we are advancing in order to provide capital and reduce risk in developing and emerging areas to accelerate the move to a lower carbon, more efficient energy system.
For businesses that are just getting started with exploring green financing, what types of projects should they consider? What advice would you give them?
As a global financial institution, we continue to look for ways to innovate and overcome obstacles in accelerating capital investments to help to address climate change and ensure a sustainable future for us all.
From our perspective, green finance is really a two-step process. Whether it’s a company, municipality, or not-for-profit institution, organizations should start by first identify their biggest priorities for sustainability. Such as… could they reduce long-term operating expense by investing in efficiency? These are the types of activities our leasing team works on with energy services companies (ESCOs) through an array of financing tools to help clients fund efficiency investments.
Other considerations would be if companies are committing to sourcing all or more of their electricity through renewable electricity. Organizations can do this in numerous ways—funding onsite renewable investments through a green bond or by becoming an electricity off-taker of a tax equity project. The list could go on and on.
Probably the most important point is that there are more and more innovative products and services that companies, municipalities and other institutions can use to finance their activities. The best place to start is by having a conversation with their financial partner about their sustainability goals and challenges and how best to leverage green finance to meet those goals.
Bank of America created the Catalytic Finance Initiative in 2014 to address sustainable development goals. It is a unique collaboration bringing together other financial institutions and non-profits to partner on clean energy initiatives in developing and emerging markets. What specific market challenge is CFI designed to address and how much money has been deployed toward these efforts?
Where I think Bank of America and our peers have experienced challenges is in financing areas that are early stage or viewed to be much more risky—like offshore versus onshore wind; new technologies such as battery storage; and developing versus developed countries. These successes have been more episodic. That is one of the reasons we launched the Catalytic Finance Initiative (or CFI) to work with partners to develop new and scalable solutions for financing these critically important areas. While we have definitely had a number of successes under CFI, there is still so much work to do in this area.
Our CEO Brian Moynihan launched CFI at the 2014 United Nations Climate Summit and we pledged $1 billion to support clean energy projects under the initiative. Brian called on other financial services institutions to join this initiative with their own commitments, understanding that by working together we can have greater impact.
The goal of the CFI is to catalyze greater investments in the areas we need to transition to a sustainable, low-carbon economy. It does that by aiming to direct investment to high-impact projects, in order to help de-risk this sector and open the door for greater capital flows. The initiative has a specific focus on clean energy, but also aims to promote other United Nations Sustainability Development Goals like access to clean water and sanitation, education, and economic growth.
In 2016, eight partners joined the CFI and last year, three additional organizations joined the initiative. By leveraging the bank’s scale and global reach to help de-risk deals, we can address major social and environmental issues that have been really difficult to fund, while ensuring a commercial rate of return for investors. To date, we have completed more than 25 deals in both developed and emerging markets and have already helped to mobilize more than $9.3 billion in investments. So we’ve been learning by doing with a great set of partners from across the financial sector.
How is Bank of America managing its approach to climate risks, given the increasing push for more climate-related risk disclosures coming from institutional investors?
We run our company by driving responsible growth—growth that is sustainable, focused on investing for the future, and underpinned by our commitment to having strong environmental, social, and governance (ESG) practices.
This strategic focus comes straight from our CEO, and is shared by his leadership team and integrated throughout our lines of business to ensure we are leveraging opportunities that will have positive environmental and social impact, while being diligent in managing our risk in these areas. And, every member of the executive management team is held accountable through ESG metrics on their performance scorecard.
We continue to strengthen our ESG management across the company, starting with our Global ESG Committee, which is led by our Vice-Chairman Anne Finucane. It is comprised of senior executives from across the company and it actively engages in dialogue and debate on social and environmental issues material to the company. It meets at least three times a year, is accountable to the CEO, and reports regularly to the Corporate Governance Committee of the Board of Directors.
We publicly articulate our approach to environmental and social risks to our business through our Environmental and Social Risk Policy Framework (ESRPF), which outlines the risks that are most material to our business and how we identify, measure, monitor and control these risks as part of our company’s risk framework. An example of that is my team is responsible for leading our response to the Taskforce for Climate Related Financial Disclosures (TCFD). We formed an internal working group and are working in two focused teams, one each for transition risk and physical risk to develop our approach.
We are also committed to transparency in how we manage environmental and social risks and opportunities in our business. We have detailed ESG reporting and align that reporting to our financial reporting. In 2017, for the first time, Bank of America’s Annual Report included a summary of both financial and ESG activity, and ESG is also woven into our annual proxy statements.
It is Bank of America’s view the market will ultimately reward purpose-driven companies that have responsible business practices and take a long-term view.
You have set some pretty aggressive corporate sustainability goals, such as becoming carbon neutral and purchasing 100% renewable electricity by 2020. What advice would you give to other sustainability leaders seeking to drive more aggressive environmental operations goals in their organization? What has the bank learned since setting your renewable goal a few years ago?
Bank of America LEED certified building in Charlotte, NC. Photo provided by Bank of America
Like your company, as a large, global organization, we understand the impact our operations have on the environment. But our scale also enables us to take measurable action to reduce these impacts — through our own efficiency, by adopting new technologies and by influencing our supply chain.
In 2011 and 2012, Bank of America announced a set of operational goals to achieve by 2015. Over those years, we reduced our GHG emissions by 37 percent, reduced water consumption by 34 percent and achieved 23 percent LEED certified square footage in our workspace.
Building on those successes, in 2016 we announced a new set of operational goals that we will work to achieve by 2020, including a commitment to carbon neutrality and purchasing 100% renewable electricity. In addition to these goals, we also partnered with the U.S. Department of Energy’s Workplace Charging Challenge. Through this initiative, we’ve committed to establish a workplace charging program for employees who own or plan to own an electric vehicle. We were one of the first financial institutions to join the challenge, and installing more than 70 electric vehicle charging ports in select office locations across the U.S.
This foundation of operational sustainability also includes support for our employees. We have 23,000 employees across 30-counties participating in our My Environment® employee program. Through the program, our employees engage in educational activities to help become better environmental stewards at work and home, as well as support their local communities through environmentally-focused volunteer opportunities, through which they have contributed more than 330,000 environmental volunteer hours since 2010.
Bank of America also offers employees environmental incentive and discount programs, such as a reimbursement programs for low-carbon vehicles and employee discounts on home charging stations, solar panels, and car-ride sharing.
So between our focus on deployment capital with our clients and partners, support of environmentally focused non-profits, our operational goals, and our employee programs, we are committed to engaging every part of our company to address climate change and demands on our natural resources. This is a key component of our focus on responsible growth and environmental, social and governance [or ESG] leadership.
Thank you, Alex, for sharing Bank of America’s progress and your insights. Our recently-released report, “From Data to Action: Bridging the Gap on Three Best Practices for Sustainable Resource Management,” found that 64 percent of business leaders we polled cite financial constraints as a barrier to pursuing new opportunities. Knowing that Bank of America and other financial leaders are working to remove this barrier through capital investments and alternative financing is very promising.