Focus: Bank of America’s march towards $1.5 trillion in sustainable investments – alignment with U.N. goals critical

September 18 – By Henry Engler

NEW YORK(Thomson Reuters Regulatory Intelligence) – How large banks manage their sustainable investments; the role they play as intermediaries versus direct investors, and the measurable impact of those investments on the environment and communities affected are questions that often receive little attention.

In this second in a series of articles that dives into the inner workings of sustainable investing at large U.S. banks, Regulatory Intelligence turns its attention to Bank of America’s global sustainable finance team, led by managing director Karen Fang.

$1.5 TRILLION OBJECTIVE IN ENERGY TRANSITION AND SOCIAL DEVELOPMENT

Fang, who prior to joining Bank of America (BofA) was managing director at Goldman Sachs where she led the Pension, Endowment and Foundation Cross Asset Solutions Group, has a sustainable finance staff of 35 people based in the United States, the United Kingdom, France, Hong Kong, and Singapore. She is a member of BofA’s management committee and has been with the bank since 2010 and in her current role since January 2020.

The team works across the bank’s eight lines of business with a firm-wide goal of mobilizing and deploying $1.5 trillion in sustainable finance capital by 2030. The investments are aligned with the 17 UN Sustainable Development Goals (SDGs), of which $1 trillion is dedicated to supporting the transition toward a low-carbon economy and $500 billion for inclusive social development. The 17 SDGs range from clean water and sanitation to clean energy and industry innovation and infrastructure. (LINK: https://sdgs.un.org/goals)

The ambitious $1.5 trillion objective, launched in 2020, is something Fang believes is within the bank’s reach.

“We think we can achieve $1.5 trillion in sustainable investments in 10 years in a responsible and disciplined manner consistent with our responsible growth strategy,” Fang told Regulatory Intelligence.

Her team engages with clients across all industry sectors to help with the transition to a low-carbon, sustainable economy. For 2021 and 2022 there was a total of $410 billion in investments, with $235 billion related to “environmental transition” — wind and solar energy, for example.

The remaining portion, $175 billion, was focused on social issues such as housing and community development. The source of funding for the investments come from a mix of the bank’s own balance sheet and external, capital market investors.

CONSERVATIVE APPROACH IN INVESTMENT DECISIONS

Many companies have become increasingly cautious when promoting their sustainability achievements, and rightfully so. Regulators, such as the Securities and Exchange Commission (SEC), have stepped up their oversight and enforcement against “greenwashing,” where companies inflate their green credentials to attract more capital or investors. The SEC, apart from having created a “Climate and ESG Task Force” within the Division of Enforcement to identify ESG-related misconduct, has also developed a whistle-blowing program to alert the agency to potential cases of greenwashing.

Against this backdrop, BofA has taken a disciplined view of what counts as sustainable finance.

“We believe we have one of the most conservative sets of sustainable finance taxonomies that are aligned with the U.N. SDGs, and we want it to be as non-debatable as possible,” Fang said. “We are just being very pure about the taxonomy and the impact.”

The two main pillars of the bank’s sustainable finance focus are:

— Environmental transition: Address climate change and promote the circular economy, including solutions for renewable energy, energy efficiency, clean transportation, water and sanitation, sustainable agriculture, and carbon capture and sequestration.

— Inclusive social development: Advance community development, affordable housing, healthcare, education, financial and digital inclusion, access to essential services, racial and gender equality, and promote environmental justice.

The bank has also worked to strengthen the integrity of the sustainability bonds market, Fang said. In 2021, BofA announced the establishment of an ESG-themed “Issuance Framework” to further enhance the issuance of green, social and sustainability bonds and other ESG securities. The framework aligns to BofA’s responsible growth and sustainable finance strategy, which aims to mobilize and deploy capital in support of the U.N. SDGs.

“We are one of the largest U.S. corporate issuers of ESG-themed bonds. Since 2013, we’ve issued approximately $15 billion across six green, two social and three sustainability bond issuances,” Fang said.

TOUGHER PROJECTS

Despite the bank’s success and activity in sustainable finance, Fang acknowledged that there were challenges in certain markets and with developing technologies.

“The reality is that a lot of the toughest projects — in emerging markets or emerging technologies — generally require ten times the amount of time to structure,” she said.

To address these challenges, her team has worked on scaling solutions across various areas such energy efficiency, renewable energy and agriculture, as well as improved forestry, and pollution control measures.

For example, in 2022, BofA joined several organizations in providing $25 million to Africa’s first project financing facility for mini-grids, CrossBoundary Energy Access (CBEA). CBEA will deploy $150 million over the next two years to bring clean energy and 24/7 electricity via mini-grids to power households and businesses to one million people in Africa (LINK: https://crossboundary.com/access/).

Fang echoed other finance industry executives in highlighting the need for a more streamlined and standardized process in evaluating and replicating sustainable finance projects. Ultimately, the goal is to achieve standards that are like those seen in established financial markets.

“We have to make these solutions more replicable, so they become easier to structure and faster to execute. And that is why we want to encourage learning and continuous improvement: here’s how you can structure something next time that doesn’t take two years,” Fang said.

“We have to increase the velocity of this, which is why I believe the transactional template is so important.”

MEASURABLE IMPACT PROJECTS

Amid the billions of dollars flowing through sustainable finance, it is sometimes difficult to get a sense of what real life impact such investments are having. As part of the bank’s second pillar of inclusive social development, Fang highlighted recent investments in affordable housing. For example, in 2022, the bank provided nearly $8 billion in debt and equity financing, creating more than 10,000 units of affordable housing.

BofA has also committed $15 billion to an affordable homeownership program to help 60,000 individuals and families purchase a home. Since the program launched in 2019, more than 40,000 individuals and families have purchased a home and were provided with more than $400 million in down payment and closing cost grants.

In future, the bank has a goal of providing an additional $15 billion in mortgages to low-to-moderate income homebuyers by May 2027 through the Neighborhood Assistance Corporation of America.

(Henry Engler, Regulatory Intelligence)

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