Accelerating the ESG Agenda

Published  7 MIN READ

Bank of America’s recently formed EMEA ESG Strategic Council has a number of important goals in its sights. TMI talks to the council’s leaders about how it will deliver and what it means for stakeholders.

With a stated intention of becoming net zero by 2030, the long-term environmental commitments of Bank of America (BofA) are ambitious. To help steer progress and achieve its goals, it has recently formed an EMEA ESG (environmental, social, and governance) Strategic Council.

Led by a brace of senior executives – Julian Mylchreest, Executive Vice Chairman, Global Corporate & Investment Banking, and Fernando Vicario, CEO, BofA Europe DAC & Country Executive, Ireland – the council’s activities will be wide-ranging as it aims to support each element of ESG with equal fervour.

In its efforts to date, BofA has not been afraid to put money on the table. Its ESG journey started in 2007 when it committed to a $20bn programme. In 2013 it added a $125bn environmental business initiative. Today’s ESG programme ramps up that commitment as it seeks to deploy $1.5tr. of sustainable finance.

But money needs a plan, and BofA has three primary ESG goals set in stone, with the council charged with helping to deliver each. It will work to minimise the bank’s impact on the climate, alongside its continuing assessment and management of climate-related risks. It will also be guiding the bank’s support for clients as they transition to low-carbon operations. And, as an internal guiding light, the council will additionally help to drive the bank’s public policy and advocacy activities along ESG lines.

BofA’s existing resources in this space – its Global ESG Committee, Sustainable Finance Group, Sustainable Markets Committee, ESG Risk and Regulation team, and Public Policy unit – will all now be complemented by the new EMEA-focused Strategic Council. The latter will be key to ensuring strategic alignment across the bank’s business activities in the region. In doing so, it will “best serve the bank, its clients, key stakeholders and communities,” says Vicario.

Co-ordinated approach

By co-ordinating bank resources, and engaging with key stakeholders, the council can be seen as a timely market response to Europe’s authorities as they continue proposing a raft of ESG regulatory changes for the corporate community to absorb.

There are currently three regulatory tillers acting upon EU marketplace development. These are the EU taxonomy (a list of environmentally sustainable economic activities), the EU Corporate Sustainability Reporting Directive (requiring verifiable and accessible non-financial ESG data to be provided to investors to enable informed decision-making), and the EU Sustainable Finance Disclosure Regulation (which demands that fund managers disclose their approach to sustainability risks in their investment processes and products).

Of course, the council will need to work for the widest of audiences, mindful that accusations of greenwashing the ESG agenda persist. For Mylchreest, with ESG having rightly progressed all the way from a somewhat niche effort to become a mainstream matter that is front and centre with the C-suite, the time to bring together related and well-established pockets of expertise within the bank has come. It is, he feels, a positive response by BofA to the raising of the ESG bar – by public and private demand – that co-ordinates and makes accessible “the best that we have available across all channels”.

The co-ordinated approach will see each element of ESG tackled with uniformity. “We’re taking a holistic view; we don’t believe one leads and another follows, they are all equally relevant,” states Mylchreest.

That said, with COP26 (the 26th United Nations Climate Change conference) scheduled for Glasgow in late October, there is an opportunity for the bank to highlight further core environmental themes with its clients. “The ‘E’ will receive more attention at this time,” Mylchreest explains, “but for us this is just a short-term function of a major event taking place on our doorstep, longer term we will be just as much focused on the ‘S’ and the ‘G’.”

Indeed, COP has the potential to make a difference and should not be downplayed for any reason. And this time round Mylchreest believes there is an opportunity for the response to be more evenly distributed among key stakeholders and in particular, with more weight falling, he hopes, on companies and sector-wide alliances to step up.

While previous outcomes of COP – new frameworks, policies and targets – have been largely government driven, he sees an increasing number of cross-industry alliances and commitments influencing ESG thinking going into the event, which will be able to drive the agenda of action post-event.

“But it’s important for us to align with our clients to make those action plans real, otherwise there’s a risk of too much long-term alignment and not enough shorter-dated action,” states Mylchreest. “We want to help them shape their response, and fund and support it.” With the BofA council helping to align bank thinking and understanding with client drivers and expectations, he anticipates an increasingly positive outcome.

Governance does matter

Post COP26, there is still a matter of balancing the three components of ESG. While it’s clear that the environmental and social elements have a long held a stronger grip on public and corporate consciousness, Vicario believes that governance is now being driven forward by a robust political agenda within the European Union (EU), with the support of the European Central Bank (ECB).

As recipient of a number of the ECB’s so-called ‘Dear CEO letters’, outlining the central bank’s expectations of the region’s banking community in terms of governance, Vicario is charged with co-ordinating and communicating BofA’s response. These letters, he reports, are arriving with increasing frequency.

As an example, on 1 July of this year, the ECB communicated its report on the uneven impact of climate change for the EU financial sector, and is now seeking categorisation of that impact into physical risk and transition risk. At the same time, it launched a pilot climate stress test programme, which it said will become a requirement for systemically important financial institutions in 2022. 

Less than a week later, the ECB published its new sustainable finance strategy. This introduces the European green bond standard, which although voluntary means every player in the capital markets space will have to adopt it because investors will demand it. A few days later, on 9 July, the ECB announced its commitment to the inclusion of climate data into its monetary policy.

Vicario comments: “It’s clear that the financial services industry is geared towards becoming an agent of change and we are required by the various European bodies to accelerate the pace.” While individual banks are undertaking a host of activities to ensure an effective response, he acknowledges that the broader work of ESG cannot be achieved in isolation.

European green bond standards, for example, now require external validation, especially as proof of compliance with the EU taxonomy continues to tighten. And stronger governance and greater stakeholder expectation is also driving a need for external auditing of annual reports and ESG statements.

Issuers in the capital markets are also being increasingly influenced by investor demands. It is the role of banks to help align the expectations of both parties. “We must ensure the rapidly evolving ESG-related regulatory requirements – and indeed the recommendations of the ratings agencies – are met,” notes Vicario. “And as BofA commits $1.5tr. to the ESG agenda, it is critical that we ourselves continue to understand and adapt to market trends if we are to help our clients in their transitions.”

Sharing intel

As BofA’s programme rolls out, success, says Mylchreest, stems from “pooling the best intel internally”. This means drawing, for example, not only upon ESG-focused discussions with equities researchers, but also from conversations with investors about their ESG frameworks, policies and drivers. It also involves partnering with external stakeholders, including leading academics in the field, to build upon and share intel so that “the right advice” is forthcoming.

In practice, the increasingly urgent and demanding voice of stakeholders (which ultimately is everyone) means financial institutions should be scaling up their ability to harvest and share knowledge with their clients. At a corporate level, for a client to demonstrate that its business is future-proof, Mylchreest comments that it increasingly means meeting all ESG demands. “If the multiple on its cash flow is higher as a result, its valuation is higher. If this is where it needs to pivot, we need to be able to help it make that move by funding and supporting that journey.”

As part of an evolving response, the industry solution set has moved beyond the arguable values of carbon offsetting and now includes products such as social bonds, transition bonds, sustainability-linked bonds, green convertibles, ESG-compliant derivatives and ESG-compliant supply chain finance.

With “every element of ESG now well covered”, Vicario believes that we’re in the midst of “stakeholder capitalism at its best”. However, with multiple stakeholders showing no signs of letting up any time soon, he fully appreciates that BofA’s EMEA ESG Strategic Council has its work cut out. “We’ll have to do a lot of heavy lifting to achieve our goal, but by doing so our efforts will translate into not only some serious additional support for our clients but a more sustainable future for our planet.” Future generations will judge the results.