Brian Moynihan, president and CEO of Bank of America, said he would like to see sustainability bonds expand to include issues such as biodiversity and the market is just getting started.
Moynihan spoke on March 9 at the IIF Sustainable Finance Summit 2022. He said: “It’s pretty amazing how much capital is flowing into green bonds and we’re just getting started. You’re going to see lots of action.
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“A power company could issue a green bond that says if I’m not at 50% renewable energy by a certain date, I pay a higher interest rate,” he said. “It builds the strength of their commitment and the market rewards them with access to capital to help them make the transition, so it’s a good business system that we believe in.”
Global issuance of sustainable bonds – including green, social, sustainable and sustainability-linked bonds – will exceed $1.5 trillion in 2022, according to research by S&P Global Ratings.
The rating agency found that while sustainability bonds still make up a relatively small share of global bond issuance, they are growing rapidly – reaching 11% of global issuance in 2021, from less than 5% three years earlier.
S&P estimates that this year, sustainability bonds will account for around 17% of total 2022 issuance as public and private sector issuers continue to meet their climate commitments.
“As the pool of issuers diversifies across industries, geographies, entity size and credit quality, new issuers will have more financial incentives to advance their sustainability goals and programs,” he said. declared S&P Global.
In April 2021, Bank of America announced its goal to deploy and mobilize $1 trillion by 2030 as part of its environmental business initiative to accelerate the transition to a sustainable low-carbon economy. Moynihan said: “I guess we’re going to beat that in the next 10 years.”
Bank of America has predicted that the total cost of transitioning to net zero will be around $150 trillion.
Moynihan said the bank has encouraged relationship managers to talk in depth about the transition with their customers, including its many middle-market clients.
“Net zero commitments from large customers require a complete change in their supply chain,” he added. “This will move billions into new buying activity around the world and our job is to provide guidance and funding.”
Moynihan highlighted the need for carbon pricing for offset markets and voluntary carbon initiatives. He said: “You need a price to value the carbon taken, and then you can start scaling the offset markets.”
However, he stressed that finance will not control the transition because it is the private and public sector that must change their behavior.
“The finances will reflect this result,” added Moynihan. “It can help educate, advise, create offers, create activity and structure.”
Axel Weber, chairman of UBS and chairman of the IIF, told the summit that regulars can provide either detailed rules or a more general principle-based regime backed by strong oversight and enforcement. He thinks both strategies can lead to better market integrity and better disclosure, although he would prefer the principles-based approach.
“The latest set of TCFD reports, including that from UBS, is a good starting point,” he added.
The Financial Stability Board established the Task Force on Climate-Related Financial Disclosures to develop recommendations for more effective climate disclosures and more than 2,600 organizations have expressed support for the recommendations.
Weber also pointed to the need for regulators to coordinate standards internationally because there are about 25 different taxonomies around the world and no common definition of green.
“We’ve found that mutual recognition and common standards haven’t really worked when it comes to capital regulation and I’d be very concerned if we tried to do the same when it came to sustainability,” Weber said. “It is absolutely important that regulators come together and come up with a common standard.”
In May 2021, UBS appointed Michael Baldigner to the newly created position of Chief Sustainability Officer. Prior to joining UBS Asset Management in 2016 as Head of Sustainable and Impact Investing, Baldinger was Managing Director of RobecoSAM, the sustainability firm.
Baldinger reports to Suni Harford, Group Board Sponsor for Sustainability and Impact, and Chairman of UBS Asset Management. Weber said sustainability is an integral part of UBS’s board and advised companies to appoint a director of sustainable development for accountability.
“Make no mistake about it, once you embark on sustainability, it has a huge impact on your day-to-day decisions in all areas of your business, from credit to investment banking to markets. capital, wealth or asset management products and client journeys to green their portfolios,” added Weber.
However, he argued that once companies embark on the journey, staff discover there is a business reward, as well as an environmental reward.
UBS was the first bank to make sustainable investment portfolio in wealth management the norm according to Weber.
“Over the years, sustainable portfolios have really performed better and that’s why clients are buying into them,” he added.