Investing: the Sustainable Trillion

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Bank of America

BofA

What we are calling The Sustainable Trillion is a new Trillion Dollars of sustainable investing commitments that have emerged in recent months.  This amount of new money has the potential to help transform the way business is done, making it more sustainable in a race for more environmentally and socially friendly capital.

Bank of America in my recent experience is the most "all in" of the large US financial institutions attempting to grow their business on the back of sustainable and impact investing.  

They are managing $10B of assets and are actively seeking to help their clients align their values with their investments.

CEO Brian Moynihan has been outspoken about climate change at the recent INCR event in NYC hosted by CERES and this recent press release discussed that "the bank has upped its pledged to increase the company’s current environmental business initiative from $50 billion to $125 billion in low-carbon business by 2025 through lending, investing, capital raising, advisory services and developing financing solutions for clients around the world.

Bank of America has provided more than $39 billion in financing for low-carbon activities since 2007, including $12 billion in 2014 alone, of which:

  • Forty percent went to renewable energies – solar, wind, hydro, geothermal, advanced biofuels or mixed portfolios.
  • Thirty-three percent went to financing energy efficiency.

Bank of America has played a leading role in the development of the rapidly expanding green bond market, issuing the first benchmark-sized corporate green bond in 2013 – a $500 million offering – followed by a second green bond for $600 million in the spring of 2015. According to Bloomberg New Energy Finance, Bank of America was the No. 1 underwriter of green bond issuances in 2014."

Given its efforts, including dozens of employees working directly on these questions, and their being known to have trained internal advisors to help their clients, Bank of America deserves a second or third look when you make your choices on sustainable investing.

It is important for the success of the field that the firms that commit the most resources and demonstrate expertise and willingness are rewarded with market share.

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Goldman Sachs

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Goldman Sachs recently made the largest financial commitment of any global financial institution to climate solutions financing.at $150 Billion by 2025 as part of its updated Environmental Policy Framework.

Although not believed to be as fully integrated and committed to the sustainable investing cause as Bank of America, this is a step forward for the bank.

The New York State Common Retirement Fund recently committed $2 Billion to start into a new low carbon fund Goldman will manage using CDP information.

Somewhat famously Goldman Sachs during the Global Financial Crisis of 2008 put its GS Sustain research right at its homepage in September of that year.  Goldman's playing both sides of CMOs and other mortgage derivatives was famously criticized by Michael Lewis' The Big Short and the subsequent movie.  

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Citi

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Citi has also recently committed $100 Billion to a "10-year commitment to financing sustainable growth,"  including "activities that reduce the impacts of climate change and create environmental solutions that benefit people and communities. Citi's previous $50 billion goal was announced in 2007 and was met three years early in 2013."

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Bloomberg New Energy Finance

Bloomberg's New Energy Finance unit tracks renewable energy investment levels and recently reported a record $329 Billion in 2015, six times more than in 2004.  

This increased level of investment is only expected to accelerate as newer forms of energy such as solar, combined with storage, become cheaper.

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European Investors

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The recent climate negotiations in Paris known as COP 21 not only led to the adoption of the Paris Agreement but also sparked a variety of new investor commitments.

The Montreal Carbon Pledge has been committed to by $10 Trillion worth of assets by investors.

The Largest Pension Funds in Europe are also extremely active on the sustainable investing front now.

For example, the Norwegian Government Pension Fund Global, representing over 13% of European pensions,  and the largest such fund, has a transparent and robust process for responsible investment, with a government mandate to address climate change, water and children's rights.

Large Dutch Pension Fund APG has increased its allocation to positive sustainable investing to 50 Billion Euros.  PGGM the other large Dutch fund, representing retired healthcare workers is similarly committing new assets in this manner.  The Swedish AP funds are all active on this front as well.

Europe has long been a leader in sustainable investing, and many of its fund managers are also among the more innovative such as Mirova and Nordea.  

Mirova now operates from the US and it will be interesting to see if financial institutions with a track record and expertise can gain a foothold here in the US newly eager for more products that can financially perform well and invest in a sustainable manner.

Add up all these new commitments and you get over a new Trillion dollars.  While not a significant proportion of the $225 Trillion of globally managed assets across all asset classes, you have to start somewhere.

Eventually, environmental and social goals can and must be baked into all investment strategies and desired outcomes, alongside the goal of financial returns.

There's no longer any reason to sacrifice one for the other.  This new Sustainable Trillion is leading the way for a more sustainable world for tomorrow's investors and its not just for millennials.  

If sustainable investing continues to grow, and it should, then all investors will need to understand this imperative, to ensure they aren't missing the megatrend of our times - ensuring tomorrow's generations can enjoy the same lifestyles and potential futures that recent generations have enjoyed up until today.