Bank of America CEO Brian Moynihan’s January 27th appearance at the 2016 Ceres Investor Summit on Climate Risk was another milestone in the progress the largest banks have made in their relationship with sustainable investing. The two pillars of sustainable investing – reducing risk and seeking opportunity – are magnified in this sector because of its role as a provider of capital for the world’s economy. The actions of these institutions have the potential for an outsized impact on the problems sustainable investing seeks to address as well as on their own financial performance. What they say – and, more importantly, what they do – matters.
Climate change and the transition to a low-carbon energy economy have been the largest sustainable investing focus for these institutions. The banks have been more eager to focus on the opportunity side of the equation – committing funding to support the transition to a low-carbon economy – than to address the risk side – potential losses due to carbon risk and stranded assets, but that is slowly changing.
A few years ago, Bank of America was a very visible example of this dichotomy. Multiple environmental groups targeted Bank of America, attacking the company for its large-scale funding of coal mining and criticizing as a distraction its commitments to reduce its carbon footprint and increase investments in renewable energy. So in early 2016, having its CEO at this event – focused on the role of the investment community in addressing climate risk and onm raising the $1 trillion needed for the transition to a low-carbon economy – was symbolic but significant.
To his credit, Brian Moynihan did address both sides of the equation during his conversation with Ceres’ President Mindy Lubber at the summit. Speaking in the context of addressing carbon risk, he stated that Bank of America had reduced coal financing by 50% over the last five years while increasing by six times its investment in renewable energy, and would continue to transition its loan portfolios accordingly.
That represents progress – incremental, especially on the risk side – but progress nonetheless. Attention to carbon asset risk will only continue to grow. It jumped after the successful conclusion of the December Paris climate talks. January’s low oil prices took their toll on banks as well as energy companies. It has not been lost on investors that banks have large loan portfolios outstanding to energy producers that were predicated on a much higher price for oil and are now at risk. The Associated Press’ January 20th report on the previous day’s market singled out Bank of America’s 5.8% decline in that context. These are short-term fluctuations, but they are clear signals about the longer-term impact of carbon asset risk.
With that reminder of the risk, it is fair to take another look at the opportunity side of the equation. For Bank of America, it looks like this, again according to Brian Moynihan on the 27th:
- the bank’s 2007 commitment to $25 billion in environmental finance by 2017 was reached five years early, in 2012.
- In 2012, the commitment was increased to $50 billion
- In 2015, seeing a huge demand, BofA increased the commitment to $125 billion.
Finally, it is important to note that Bank of America is not an outlier in making these investments. Here is a snapshot of the trajectory of several other large institutions:
- Goldman Sachs
- 2012 – $40 billion commitment announced
- November, 2015 – $37 billion achieved, target increased to $150 billion by 2025
- Citigroup
- 2007 – $50 billion commitment announced (and reached in 2013)
- February 2015 – increased to $100 billion by 2025
- Wells Fargo
- 2012 – $30 billion commitment by 2020
- March 2015 – $37 billion in loans and investments through 2014
That’s a very high-level snapshot of a much more complex -and nuanced – picture. It’s not a substitute for the deeper, and much harder, comparative analysis that sustainable investors will need and should demand as they consider their investments in the financial sector. But it provides a clear indication of which way the winds are blowing.
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