Financial institutions, especially those that are in touch with concerns of the public in communities they serve, have been known to take an interest in environmental issues. Bank of America, for example, announced in 2016 that it had established new environmental operations goals to be met by 2020, including plans to go carbon neutral.
This announcement was made as part of the bank’s intent to reduce the environmental impacts of its operations. Bank of America (BOA) said it planned to work to reduce location-based greenhouse gas emissions by 50%, energy use by 40% and water use by 45% in its operations across the globe by 2020. In addition, BOA said it was going to buy 100% renewable electricity.
“Addressing global issues like climate change and the transition to a sustainable and low-carbon future takes collaboration, innovation and investment,” Anne Finucane, vice chairman of BOA said at the time. “The expansion of our operational goals to 2020, achieving carbon neutrality, and the purchase of 100 percent renewable electricity build on our existing environmental commitment and responsible growth strategy. This demonstrates the measurable actions we are taking to reduce our environmental impacts.”
At the end of April of this year, Finucane prepared a letter that was included as the introduction in a report BOA had prepared titled, “Responsible Growth and a Low-Carbon Economy.” The report was from the bank’s Task Force on Climate-related Financial Disclosures (TCFD).
“At Bank of America, our focus on responsible growth enables us to serve clients, deliver attractive returns for our shareholders and address some of society’s greatest challenges. We have long recognized the importance of addressing climate change, partnering closely with clients and dedicating significant intellectual and financial capital to advance low-carbon solutions,” Finucane wrote in the April report. “We also understand climate change presents risks to the business community, and it is important for companies to articulate how these risks are being managed.”
The bank’s TCFD report discussed how it evaluates the impact of climate change on its business, effectively manages those risks, and continues to enhance its understanding of how to measure and model climate-related risks and their potential significance.
BOA said it has deployed more than $158 billion to low-carbon sustainable business activities since 2007, with a goal to deploy an additional $300 billion by 2030 to address climate change and demands on natural resources. This financing also will help advance the United Nations Sustainable Development Goals (SDGs) supporting sustainable cities, clean energy and clean water.
The bank established a Sustainable Markets Committee, co-chaired by Finucane and Bank of America Chief Operating Officer Tom Montag. The bank also is working with the International Business Council of World Economic Forum and the accounting firms Deloitte, EY, KPMG and PwC to develop a common core set of metrics and recommended disclosures that companies can use to help guide stakeholders in evaluating their progress on advancing SDG priorities. Bank of America CEO Brian Moynihan serves as chair of the IBC.
“The scope and range of potential impacts from climate change require close attention by all companies, ensuring that climate-related risks are properly identified, managed and disclosed to stakeholders,” Finucane wrote.
According to the report, “Governments and markets are beginning to respond to climate change with greater urgency. As one of the world’s largest financial institutions, we are committed to ensuring that climate-related risks and opportunities are properly managed within our business and that we are working with governments and markets to accelerate the changes required.”
The report states that the bank has developed a three-pronged approach to its climate change strategy. First comes assessing and managing climate-related risks. Next up is supporting and accelerating the bank’s clients’ low-carbon transition. The third prong is to minimize the bank’s direct impact on the environment.
The bank’s report says that climate-related risks are divided into two major categories. The first is related to the transition to a lower-carbon economy that may entail extensive policy, legal, technological and market changes. The second category covers risks related to the physical impacts of climate change such as rising sea level, temperature increase and extreme weather events.
“These changes and events can have broad impacts to operations, supply chains, distribution networks, customers and markets and are otherwise referred to as transition risk and physical risk,” the report said.
The bank noted that it had total operational losses from the direct impacts on its facilities of Hurricane Sandy in 2012 of approximately $33 million and of Hurricanes Harvey, Irma and Maria in 2017 of approximately $5 million.
The report cited government and academic research that projected a global temperature increase of 2.5 degrees Centigrade by the year 2090 could result in U.S.-based economic losses of $280 billion a year and that if there should be a global temperature rise of 5 degrees C., the annual U.S. economic loss could be more than $500 billion.
The bank’s report raised the possible implementation of a carbon tax and also what might happen with the widespread adoption of electric vehicles, but said measuring and understanding the factors associated with those developments will require additional effort.
The bank stated that it continues to assess risk mitigation factors associated with physical effects of climate change. The consulting firm Willis Towers Watson completed a risk analysis for the bank on a sample portfolio of residential mortgages with each given a score based on the level of risk from 12 hazards: tornado; earthquake; cyclone; hail; wildfire; river flood; flash flood; coastal flood; lightning; tsunami; volcano; and winter storm.
“We recognize that while chronic physical risk is difficult to assess, model and quantify, the impacts are potentially significant, vast and varied across geographies. Further, the impacts intensify with every degree of rising temperature,” the report said.
“We recognize there are a range of risks associated with our current levels of fossil fuel financing,” the report stated. “Our goal is to rebalance our portfolios away from more carbon emission intensive fossil fuel extraction, power generation, transportation and other consumption through engaging with clients and accelerating their progress toward low-carbon business models.” The report also noted, “We are significant investors and financiers in the expansion of renewable and other low-carbon energies.”
The report noted that some governments and markets are beginning to respond to climate change with greater urgency.
“The potentially destabilizing impact of climate risk on the financial sector has become an area of particular focus for governments and regulators. European bank regulators are beginning to require banks and insurance companies to formally address the financial risks of climate change through governance, risk management, scenario analysis and disclosures,” the report stated.