Alex Liftman, global environmental executive, Bank of America (BofA), believes “significantly accelerating progress on addressing big global issues like climate change requires going beyond business-as-usual financing to find innovative approaches that can help attract a larger share of capital from a broader set of investors.”
BofA is one of many financial institutions acting on mounting pressure to take a stance on climate change and Liftman believes that efforts directed at targeting climate change are driving economic value and producing innovative solutions.
“As we increase scale of these projects, investment risk is lowered and the cost of financing early innovations and newer sustainable business models is reduced. In turn, this allows for greater capital flows to support more environmentally focused business opportunities.”
In January, BofA announced it had successfully achieved carbon neutrality a year ahead of schedule by reducing their location-based emissions by 52% since 2010, by purchasing 100% of their electricity from renewable sources, and, for unavoidable emissions, purchasing high-quality, third-party verified carbon credits.
The bank also plans to transition away from purchasing unbundled renewable energy credits (RECS) and in 2019, “we started installing onsite solar at facilities, executing long-term agreements for new wind and solar, including sleeved, power purchase agreements, and completing tax equity owned off-site deals for new wind and solar that contribute to our goal,” adds Liftman.
Under its Environmental Business Initiative (EBI), the bank has deployed $145 billion to low-carbon sustainable activities since 2007, with another $300 billion committed to these efforts until 2030.
Sustainability prioritisation across industry
Bank of America isn’t alone in its re-calibration toward sustainability. In December 2019, a union of 631 institutional investors managing over $37 trillion in assets issued a joint statement at the United Nations Climate Conference (COP25) which called on governments to ramp up efforts to tackle the climate crisis and achieve the Paris Agreement’s objectives.
The world’s largest asset manager, BlackRock ($7.4 trillion under management), is another industry leader making significant commitments to the climate cause.
In his annual letter to CEOs published earlier this year, BlackRock CEO Larry Fink stated: “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance. Research from a wide range of organisations…is deepening our understanding of how climate risk will impact both our physical world and the global system that finances economic growth.”
But alongside the fanfare and back-patting, commentary on the topic illustrates that a commitment to sustainability isn’t altogether altruistic and there is plenty of money to be made in the space.
Goldman Sachs CEO David Solomon confirmed this in December last year when the bank pledged $750 billion to sustainable finance-related projects over the next decade: “There is not only an urgent need to act, but also a powerful business and investing case to do so,” Solomon wrote in a December 2019 opinion piece in the Financial Times.
Tech firms are also demonstrating their value in promoting not only dialogue but action in the drive toward sustainability. In addition to its commitment to go carbon negative by 2030, Microsoft recently announced the launch of its Sustainability Calculator which analyses estimated emissions from Azure services.
The company has also launched a $1 billion Climate Innovation Fund to drive development of carbon reduction and removal technologies. By 2050 Microsoft has pledged to retrospectively remove all the carbon it has emitted directly or through electrical consumption since 1975.
Major online payments fintech Stripe also announced a plan to build on its current carbon offset commitment by allocating at least $1 million per year to carbon negative solutions. By investing in carbon capture and sequestration solutions which are for the most part being developed by startups, Stripe will further the movement toward the removal of carbon in the atmosphere rather than just offsetting the business’ emissions.
Unified implementation and enforcement strategy remains an unknown
At the World Economic Forum in Davos earlier this year, Mike Corbat, chief executive of Citibank, said that banks’ role is not to ensure that companies are addressing climate change by withholding finance to polluting businesses: “I don’t want to be the sharp end of the spear, meaning I don’t want to have to be the one telling [companies] or enforcing standards in an industry or business.
“We don’t want to find ourselves being the person that dictates winners and losers. A bank’s job is to support the communities in which it operates. It is not to dictate outcomes.”
Michael Smith, president, Microsoft, takes a conflicting approach to the question of responsibility, arguing: “While the world will need to reach net zero, those of us who can afford to move faster and go further should do so.”
While regulatory efforts are in motion, such as the Strategy on Sustainable Finance recently released by the European Securities and Markets Authority (ESMA) or the European Green Deal, until there is universal agreement about core activities such as reporting and transparency obligations, risk analysis, ESG investing, taxonomy and supervision (among many more), such frameworks will remain fragmented and not provide the value needed so desperately by investors and institutions alike.
This holds true for financial institutions such as BofA despite their significant efforts to “support better disclosures and transparency of climate-related business risks” through regular analysis and reporting to shareholders and adopting global guideline recommendations such as the Global Reporting Initiative (GRI).
This is problematic as the GRI is just one standard amid a raft of standards praised for their encouragement of proactive climate action, yet in their totality present a significant obstacle to achieving industry consistency and comparability.
As Brian Moynihan, CEO, BofA echoed in January, the harmonisation of UN SDG metrics would mean “we don’t have to argue with everybody. Right now, you can hit [targets]and then somebody else has something else they want to measure.”