The investment needed to solve today’s biggest global challenges

sustainable finance narrative image

What will it take to create a more sustainable world for all of us?

The answer to that question has been clearly defined by the United Nations (UN) Sustainable Development Goals (SDGs). The SDGs lay out how it’s possible to eradicate poverty, advance environmental sustainability and provide decent housing, clean water and health care to those who are lacking them, among other global needs.

There is a catch, however. The U.N. estimates about $6 trillion a year is required to properly address all 17 SDGs. That amount far exceeds what traditional sources such as government aid and private philanthropy can bring to bear on their own. According to Brian Moynihan, chairman and chief executive officer of Bank of America, “Addressing these challenges will require the involvement of the entire global capitalist system.”

At the heart of that idea is the understanding that when businesses apply their capitalist expertise to solving problems, profit and progress can go together for the betterment of society, businesses, and the environment.

Business benefits from a sustainable world
Companies must consider their own long-term financial sustainability in light of these global challenges, Moynihan believes: “We can only be successful if the communities we serve are successful.” Individual businesses, for example, can support the communities they work in by deploying their capital toward investment in sustainable technologies and industries. And, they can manage their own operations with the additional goals of maintaining a healthy environment and workforce.

“At Bank of America, we have to align our $2.4 trillion balance sheet to the task, including our expenses, our equity, and the trillions of dollars we raise or invest on behalf of our clients,” Moynihan says. In 2018 alone, Bank of America deployed $50 billion in capital toward activities supporting the SDGs, which includes $21.5 billion toward clean energy and environmental projects. Through its Environmental Business Initiative the bank will have deployed a total of $445 billion between 2007 and 2030 to help accelerate the transition to a low-carbon, sustainable economy. In its own operations, the bank has pledged to increase its minimum wage to $20 per hour and be carbon neutral by the end of 2020, among other changes.

Increasingly, the public demands that businesses factor sustainability into their decisions. In one study, 81 percent of Millennials said companies must have a major role in driving SDGs.1 But that’s not all. Growing evidence shows a correlation between sustainability practices and better financial performance, higher productivity and lower risks.2 “If companies support the SDGs most relevant to their businesses, they can deliver profitability, shareholder returns, and tremendous progress on all that society has asked for the power to do,” Moynihan says.

Tapping resources on a global scale
Achieving the SDGs means pulling together trillions of dollars to eliminate hunger and poverty, and to help ensure that people around the world have access to necessities like affordable housing, clean water and economic opportunity.

Private capital represents more than enough money to address the SDGs. Globally, pension funds alone control more than $36 trillion in investible assets. Insurance companies represent another $18.8 trillion, wealth managers nearly $70 trillion, and banks more than $85 trillion.3 As great as those resources are, however, tapping them isn’t a straightforward process.

In 2019, Bank of America, the World Bank Group and Stanford University’s Sustainable Finance Initiative convened an international conference of investors, development banks, foundations and others to explore ways to increase the scale and speed of putting capital to work on global challenges.

Mobilizing that capital will require a new type of finance, says Alicia Seiger, managing director of the Stanford University Sustainable Finance Initiative. “As people become more aware and more concerned about the speed and scale required to address the crisis, they are proactively pursuing innovative ways to apply the capital needed to achieve the U.N.’s goals,” she says.

Ariel illustration of the world with machine cogs in a circular pattern. The HED text on top of the illustration reads: Business Steps Up.

Private companies and investors can apply capital at an unprecedented scale to some of the world’s biggest problems.

The world has urgent needs

Examples of the United Nations’ 17 Sustainable Development Goals (SDGs), aimed at solving our toughest global challenges.

$6 trillion per year

That’s the amount needed to achieve all 17 SDGs, according to the U.N.

Government, nonprofit and philanthropic funding won’t be enough.

3 Ways Bank of America Is Helping Right Now

We’re going after global challenges on several fronts.

1 Deploying Our Own Capital

Using our environmental commitment as one example, we are putting our capital to work through strategic grants, philanthropy, and debt and equity investments.

2 Mobilizing Other Private Capital

Private institutions can deploy trillions of dollars to the SDGs. Bank of America is working with the World Bank, Stanford University and others to scale this approach globally.

3 Sustainably Managing Our Own Operations

Companies such as ours are helping to meet the SDGs by supporting our workers, our communities, and the environment.

Working Together

With combined resources and expertise, we can find solutions to problems that seemed unsolvable.

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How capital attracts capital
One approach, called blended finance, aims to attract private investors by removing some of the investment risk. “If you can combine money from development banks, nonprofits, global banks, private equity firms and others, you can get things going that would have been impossible otherwise,” says Anne Finucane, vice chairman, Bank of America.

With blended finance, a development bank or nonprofit foundation provides a layer of financing to a project that private investors may deem too risky. By taking on a share of the risk and remaining invested for the duration, the investment makes it possible for others to join. Pension funds, insurance companies, banks and others are then able to invest at a level of risk that suits their needs.

Through this process, a relatively modest investment can attract many times its amount from private investments. And because that development bank or nonprofit isn’t trying to fund the whole project alone, those organizations can use their resources to seed and sustainably finance a wide array of projects.

Combining money from development banks, nonprofits, global banks, private equity firms and others, gets things going that would have been impossible otherwise.

ANNE FINUCANE
VICE CHAIRMAN, BANK OF AMERICA

 

A key role for global banks
Major financial institutions such as Bank of America, because of their scale, global reach and expertise, can play a key role in structuring blended finance projects. “Whether it’s affordable housing, or environmental sustainability or gender parity, we feel that we can be part of the solution of the much larger issues that are going on in the world today,” Finucane says.

A global bank might even take on the role of providing high risk capital to attract additional investors. In 2018, Bank of America committed $60 million to create its Blended Finance Catalyst Pool. The pool supports several of the U.N.’s Sustainable Development Goals, including: Clean water and sanitation (SDG #6), affordable and clean energy (SDG #7), affordable housing (SDG #11) and climate action (SDG #13).

Bank of America is committing up to $5 million in investments for specific projects in the United States and overseas, with the goal of attracting additional capital from other private investors. In Charlotte, North Carolina, for example, Bank of America’s initial $2.5 million contribution will help spur a $50 million fund aimed at building 1,600 affordable housing units over the next 10 years. Such efforts represent the start of a trend that, if successful, could help put trillions of dollars to work toward achieving the SDGs.

Growing in the right direction
At Bank of America, helping finance global solutions is part of an overall commitment to sustainable management and responsible growth as a company—a commitment that Moynihan says is reflected in a question the bank asks of every customer: What would you like the power to do?

As chair of the World Economic Forum’s International Business Council, Moynihan is working with other leaders to identify best practices and set standards for sustainable management, enabling all private companies and their stakeholders to measure progress toward operating their businesses with the best interests of society and the environment in mind.

And when like-minded organizations pool their skills and resources and deploy capital around the world, he says, “It becomes not only possible, but inevitable, that we are able to address the immense challenges facing our communities and the world in a meaningful and fundamental way.”

Learn more about Bank of America’s commitment to responsible growth.

  1. https://www.goldstandard.org/sites/default/files/documents/sdg_report_optimized.pdf
  2. https://www.spglobal.com/en/research-insights/articles/the-esg-advantage-exploring-links-to-corporate-financial-performance
  3. https://www.blendedfinance.earth/better-finance-better-world\

12/13/19


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