Big banks make good bad guys — often deservedly so.
That includes Bank of America, the second-largest US bank by assets. It has had its fair share of run-ins with regulators, especially for bad behavior involving risky mortgage securities and home foreclosures that helped spark the Great Recession more than a decade ago.
But under chief executive Brian Moynihan, a veteran Boston banker, Bank of America has more recently cultivated a do-gooder reputation by financing sustainable energy initiatives, as well as economic development in communities of color. Last week, the company raised $2 billion to do just that by selling bonds to investors, bringing its total for such deals to nearly $10 billion, with most of that coming since 2018.
It’s part of a broader initiative at the North Carolina-based bank — and by many companies and investors — to be better corporate citizens, especially when it comes to the environmental and social impact of their businesses. Last year, Bank of America committed $300 billion to green initiatives through 2030.
This “do-good-to-do-well” approach — some call it environmental, social, and corporate governance (ESG) investing; others use the terms socially responsible, sustainable, or impact investing — has gone from niche to mainstream. US sustainable investment assets held by mutual funds and other institutions climbed to nearly $12 trillion at the start of 2018 from $178 billion in 2005, according to the most recent data from the Forum for Sustainable and Responsible Investment. That represents about a quarter of all professionally managed investments.
I can hear you scoffing already: Bank of America’s ESG campaign is just PR designed to clean up its image and make it look socially and environmentally woke.
There’s no doubt Moynihan wants to make the bank look good. But as the surge in socially responsible investing shows, his customers want to get behind ESG efforts, too. The bank is helping make that possible.
“We’re creating asset classes for other investors to do well on their own,” he said in an interview on Friday. “That’s real action. It’s real change.”
Again you scoff.
I get the skepticism.
Moynihan, who was paid $26.5 million in cash and stock last year, is a 1 percenter, a made member of the American corporate establishment that has profited from an economy riddled with economic and social inequities.
But here’s the thing: Making capitalism more compassionate — and our country more capable of taking on the existential challenges of climate change, racism, and economic injustice — won’t happen overnight.
If Moynihan and other fundamentally decent and well-intentioned captains of commerce want to embrace doing the right thing, I’ll take it — even if their motives are tinged with the color of money, and the impact of ESG initiatives on the environment and struggling communities is far from clear.
What’s also not clear is whether socially responsible portfolios generate higher returns than conventional investments. Moynihan said research that shows companies with poor records on the environment, social issues, or corporate governance fail more frequently than those with high scores.
“You could have avoided 90 percent of the bankruptcies over the last decade," he said.
But whether the stocks of companies with high ESG ratings outperform others is less clear, he said.
Studies of the issue have come to different conclusions.
In August 2019, Moynihan was one of 181 CEOs who signed a Business Roundtable statement that broke with one of the basic tenets of capitalism: Corporations exist principally to serve their shareholders. No, they said, companies must also “deliver value” to customers, employees, suppliers, and the communities where they operate.
Moynihan is a lawyer by training who became the top wealth and investment management executive at Bank of America in 2004 after it acquired FleetBoston Financial, where he had worked for about a decade. He was chosen CEO at the end of 2009 and added the chairman’s job in 2013. He still lives in Wellesley, when he’s not traveling around the country on business.
Bank of America issued its first environmental bond in 2013, raising $500 million for renewable energy and energy efficiency. In 2019, the bank sold its first social-initiative bond, a $500 million deal to support affordable housing and community lenders that serve low-income neighborhoods. It was the first social bond issued by a bank. Bank of America is the leading issuer of ESG bonds, according to Bloomberg data.
Spearheading the ESG initiative is vice chairman Anne Finucane, another former FleetBoston executive who kept her Lincoln home after the Bank of America takeover. Finucane and chief operating officer Thomas Montag are cochairs of the committee that works with the bank’s business lines to make ESG loans and investments.
The $2 billion bond deal last week was large by ESG standards, but demand was strong and Bank of America was able to sell out while lowering the the interest rate it will pay. It was the bank’s first sustainability offering, an emerging ESG niche that blends green and social goals. The Green New Deal meets Black Lives Matter.
In a first for bank ESG bonds, the social portion of the proceeds will be dedicated to “financial empowerment of Black and Hispanic-Latino communities,” the bank said.
“The racial angle is unique,” said Rob Fernandez, vice president and director of ESG research at Breckinridge Capital Advisors in Boston.
I asked Moynihan why he’s made ESG a top priority for the bank.
“Large problems can’t be solved without large corporations,” he said, because charities, nonprofits, and governments don’t have enough money to do it themselves.
You may scoff, but the problems we face as a country are daunting. Yes, ESG financing and investing will be just a small part the solution. And the hype is overdone.
Still, Moynihan deserves credit for thinking beyond the bottom line, even if he never takes his eye off it.