BofA ready for tough conversations with clients to hit ESG goals

➤ BofA has increased its green financing target and could upsize it again as it looks to take share

➤ The bank expects clients to decarbonize and could be forced into "hard decisions" on retaining clients

➤ Clients are broadly receptive to engagement on climate transition

Bank of America Corp. has been scaling up its commitment to fund the climate transition, setting a goal of $1 trillion of financing by 2030 for projects and investments to reduce carbon emissions and address other environmental needs.

The new target is part of a broader, $1.5 trillion commitment to sustainable financing that includes activities in areas such as affordable housing, health care, education and financial inclusion.

Karen Fang is a managing director and head of global sustainable finance at the bank. Alex Liftman is BofA's global environmental executive, responsible for the bank's global environmental sustainability strategy.

In a joint interview, the executives discussed the prospects for ratcheting up the bank's environmental financing even further as opportunities emerge beyond proven technologies such as wind and solar.

The following transcript has been edited for length and clarity.

S&P Global Market Intelligence: Could you sketch what sorts of projects, sectors and initiatives will make up your targeted $1 trillion in climate-related finance by 2030? It is a big step up from the roughly $200 billion since 2007.

Karen Fang: The sustainable finance commitment that we set is obviously a lot larger in terms of numbers. And that is speaking to our anticipation of the fast growth in anything sustainable. It's also really talking to our confidence in our own market share increase.

Our job is to scale this capital deployment because globally, we need $3 trillion to $5 trillion a year. The target captures newer emerging technologies, such as fuel cell, clean hydrogen, carbon capture and sequestration. All of those new technologies and sectors are exactly where we are drilling in with companies, with startups with private equity funds that are all focused on incubating these newer technologies that are really necessary for decarbonization.

The $1 trillion, 10-year target is big, but against the backdrop of an annual global need for sustainable financing of $3 trillion to $5 trillion, is it big enough?

Fang: Every time we set a goal, we always exceeded that goal early and we always upsized it. So one woman's guess? Are we going to exceed that goal? I would hope, yes. And are we going to potentially upsize it? I hope so.

Alex Liftman: One thing that gives me a lot of optimism having been in this space for a long time — over decade doing this work — is just our capacity as an organization to drive whole new areas of financing, the leadership that we played in the development of the green bond market, having been the first corporate to issue a green bond, a benchmark size green bond, and then having issued many more and then really having led in underwriting in that space, our leadership in tax equity investment. The fact that 17% of all solar and wind assets on the ground here in the U.S. operating today, we finance. My overall point is just our willingness to really dig in and do the hard work to develop whole new areas, segments of the market that tap into pools of capital to get capital flowing to these various different areas.

Fang: We'll get to our $1 trillion goal just by doing wind and solar, and we recognize that's not enough. That's why we spend the time to innovate. The impact is going to come from incubating these technologies that will be much more mainstream in five years, 10 years, and that's where we're spending the time.

Inverting the question, how do you think about what percentage of your balance sheet or current financing activities aren't consonant with a net zero world? Andrew Plepler, BofA's global head of ESG, recently said that helping businesses achieve the climate transition includes making sure that client engagement "has teeth," and that will be the "next phase of ESG implementation." Could you elaborate on what that means?

Liftman: We know the next 10 years are going to be critical. So, we have committed to set 2030 targets in high-emitting portfolios: energy, power and other areas. So that's part of where the teeth come from — having targets that we have to manage to. We also are very, very engaged with all of our clients because we see opportunities across all sectors, but in particular, with clients in those high emitting sectors.

And our expectations are evolving. Our expectations are that our clients are going to assess and report their greenhouse gas initiatives. That they're going to understand where they are today, that they're going to develop a plan for decarbonization. And then that they will obviously make investments to make progress with regard to that plan. We have years of expertise across all of these areas with what we've done within our own operations, with all of the advice that we have provided to our clients. Our expectation is that our clients will bring a commitment to decarbonize themselves because we can't decarbonize in our financing activity unless our clients decarbonize. And we see enormous opportunities. We obviously see risk.

In terms of the expectation that clients will decarbonize, presumably you expect that some won't and that you'll have to divest some business? Is that a reasonable corollary of what you're saying?

Liftman: Our philosophy, our strategy is certainly around engagement. And we feel very strongly that our goal is to work with our clients to help to advise them and to help to provide the capital and expertise that they need to make the investments to decarbonize. Because that certainly is how we're going to have real world decarbonization. That's much more beneficial than simply divesting of clients and moving them to another financial institution, or another part of the financial industry. But, certainly, as we move closer to our 2030 goals, there is the possibility that we will have to make hard decisions, and we will obviously do that when we need to.

Fang: I've yet to find one client that really resists the topic or basically puts up sort of excuses of not wanting to engage or transition because it is not coming just from the banks, right? The stakeholders of a company, whether it's their customers, their employees, their communities that they operate within, they're all asking them. And at this juncture, I think there are close to 3,000 companies that have already pledged net zero by 2050. So this momentum is picking up a lot. We have not found people that are resisting. We have a lot of clients that are confused about the taxonomy, about how do they go about even calculating their emissions, let alone setting a credible glide path. All of that work we're helping them out in our advisory work. It's active engagement. It's helping them understand, helping them track, helping them set up a plan, and then we help facilitate that transition. We want these clients to be engaged with the mainstream capital providers and banks because we believe in the right direction and collaboration is the answer.

You have committed to disclosing financed emissions under the Partnership for Carbon Accounting Financials. Could you tell me about how important the framework is to reaching net zero?

Liftman: We do think there needs to be an industry standard for calculating and reporting out on financed emissions. We looked at a number of different emerging methodologies, and we joined PCAF because we think it has the most promise. We definitely hope that other peers will join us in that effort because we feel strongly that we need one consistent framework for reporting.