Q&A: What will it take to create a more sustainable world?

As climate change intensifies, every segment of society must have an abiding interest in stemming its impact. The transition from a carbon-intensive to a net zero economy — critical for achieving true sustainability — must happen quickly and decisively, with the full commitment of the business and financial communities. “Sustainable finance means putting humanity and purpose together with capital,” says Karen Fang, global head of Sustainable Finance for Bank of America. “And every industry has the power and obligation to adapt and help drive positive change.”

Here, Fang, Alex Liftman, global environmental executive for Bank of America, and Mary Obasi, global climate risk executive for Bank of America, discuss what the transition to a low-carbon economy entails, why environmental and social challenges are linked, and the essential role financial institutions and investors must play in driving solutions.

Q: Sustainability is often associated with philanthropy, but the private sector is increasingly taking a leadership role, why?

Fang: Environmental and social challenges have been with us forever. But the science — and real-world events — have demonstrated that society must act collectively, now. The private sector has to be involved and we simply cannot take the position of “business as usual” anymore. Nonprofits and governments are essential to helping address these problems, but they can only go so far when it comes to supplying the trillions needed annually to address climate change — it’s simply too large a number for them. Solutions will require innovation, capitalism and all sectors working together to create more sustainable businesses, communities and economies.

Liftman: Corporations are getting more comfortable using their voices and influence to support change. They’re embracing stakeholder capitalism — the understanding that profit alone is no longer the goal — and the idea that companies must address issues such as economic mobility, racial equality and a net zero future. And they’re increasingly backing that talk up with action, for example, by helping clients across all industries set net zero goals. What we’re coming to realize is that none of these challenges exists in isolation. A more sustainable environment goes hand-in-hand with sustainable communities and more sustainable business — which means focusing on diversity and inclusion and economic opportunity even as we all pursue environmental goals.

Q: What’s does the transition to a sustainable economy look like?

Obasi: There’s no one-size-fits-all solution for companies or governments to follow. Just as we’re all becoming more familiar with acute physical risks — flooding, drought or wildfires — there are transitional risks that businesses are still learning how to plan for. In technology, for example, many of the solutions that will help realize a net zero economy have yet to be invented. So as a business, in addition to managing environmental or social risks that might impact your supply chain, you’ll also need to be ready for new tech that could impact your strategies and policies.

Fang: Companies in almost every industry must rethink their business models. High-emitting sectors, such as energy, transportation and agriculture, face particular challenges. Achieving a low-carbon economy doesn’t mean abandoning those sectors; it’s about helping them transition to renewable energies, electric vehicles or efficient use of natural resources. Most companies realize it’s in their best interest to grow sustainably. However, the challenges include moving quickly and at a comprehensive scale to implement solutions.

Q: How is sustainability affecting investors?

Liftman: Global demand for investment choices that can produce financial returns while supporting ESG goals has intensified. These may include green or social bonds, such as the two $2 billion Equality Progress Sustainability Bonds that Bank of America issued to advance racial and gender equality, economic opportunity and environmental sustainability. Or they may be mutual funds or sophisticated private equity funds aimed at addressing specific challenges. One critical goal that the financial services industry must keep working toward is to continue developing innovative ESG options and solutions to serve this demand.

Obasi: One reason for the increasing popularity of ESG investing is the growing evidence that companies with strong ESG records pose fewer risks for investors, especially in challenging market conditions. That’s why it’s becoming more critical for companies to make environmental and social disclosures — it helps investors better understand related risks and make more informed decisions. In fact, we’re quickly approaching a business environment where those kinds of risk assessments are expected and becoming part of the norm.

Q: Does committing to a low-carbon future reduce risks for businesses?

Obasi: Climate change and other challenges represent serious risks for all businesses — from impacts of adverse weather to heightened regulations to reputational damage for organizations that fail to act responsibly. Senior leaders must make clear that their companies are committed to a rigorous risk management program as part of their due diligence and responsibilities. These leaders need to ensure that robust processes are in place in their organizations to review new and existing threats. And, they should use growing, available data sets to quantify those threats and create early warning systems to alert them when risks are elevated.

Q: What is Bank of America doing to help?

Liftman: For nearly two decades, Bank of America has been reporting on climate-related risks and our own environmental footprint, and in 2019 we became carbon neutral in our operations, purchasing 100% renewable electricity and buying carbon offsets for unavoidable emissions, among many other steps. The next leg of our journey to achieve net zero before 2050 is to set measurable interim emission reduction targets across our entire value chain to ensure we are making steady progress. In 2020 we joined the Partnership for Carbon Accounting Financials (PCAF) to develop new reporting standards for “financed emissions,” the emissions that are associated with our lending and financing activities. Recently we announced our 2030 targets for reducing emissions associated with financing activities related to three key sectors: auto manufacturing, energy and power generation. The targets are outlined our Approach to Zero™, which details our net zero greenhouse gas emissions approach and target-setting process.

Fang: This is not something we’re pushing on our vendors and clients; instead, it’s a mutual dialogue. While most companies want to do good, many don’t yet fully understand how to get there, because these are complex, large solutions to implement. Bank of America was one of the first companies to support climate finance efforts. Since 2007, we have deployed approximately $350 billion to low-carbon business activities, and last year we set a goal of $1.5 trillion in sustainable finance by 2030, of which in 2021 alone we deployed $250 billion to these efforts. As a result, we have a lot of strategic and logistical expertise and leadership that we can bring to the table. In fact, the education and advisory services we offer clients is as important as the financing we can provide.

Q: What makes you optimistic that society will succeed in these efforts?

Liftman: We’re starting to see people from different backgrounds and perspectives — business, government, nonprofits and communities — recognize that we all need to collaborate on solutions to climate change. This can’t be a situation where industry is on one side of the fence and environmentalists and social advocates are on the other, while policy makers referee. The private sector can drive consensus, which is already happening more and more.

Obasi: When companies can disclose climate and emissions data in a consistent, standardized and reliable way, it helps the methodologies and tools used for quantifying climate risks for specific companies and industries immensely. That’s why collective collaboration across all areas of a company is so important to gathering metrics, assessing the impacts, and planning for solutions and interventions. For example, lines of business should work with their risk assessment partners and the front office to get a strong sense of how to anticipate and create plans to deal with climate-related risk. This transparency will benefit everyone from individual companies to national governments to local neighborhoods.

Fang: The urgency is hitting home to everybody. There are too many indicators — from historic droughts and levels of inequality to global trade and commerce disruptions — to continue to treat the environment and social issues as though they’re separate from business concerns. If we don't have a healthy environment and healthy society, we don’t have anything. It’s all part of the same challenge, and we all have so much at stake that we can’t afford to fail. That’s why sustainable finance isn’t a trend; it’s the way of the future.

Countering the causes and effects of climate change over the coming decades will take the combined and cooperative action of governments, nonprofits and the private sector, and Bank of America is supporting this transition to a low-carbon, sustainable economy through its operations, business activities and partnerships. Learn more about the bank’s commitments to sustainability and racial equality and economic opportunity, as well as its efforts to mobilize capital to address critical environmental and social issues affecting local communities around the world.

4/28/2022