Anne Finucane Vice Chair, Bank of America
WHAT WILL IT TAKE TO CREATE A BETTER WORLD FOR US ALL?
The SDGs provide the clearest roadmap to a better future, laying out how it’s possible to address climate change, advance environmental sustainability, eradicate poverty and provide decent housing, clean water and health care to those who are lacking them.
The U.N. estimates that about $6 trillion a year is required to properly address all 17 SDGs, far exceeding what traditional sources such as government aid and private philanthropy can provide on their own.
One year ago, U.N. Deputy Secretary-General Amina Mohammed, a fellow contributor to this journal, spoke at the inaugural SDG Business Forum to warn the world that we are not yet on track to achieve the Goals: “The financing gap is $2.5 trillion per year. Poverty is falling too slowly. No country is on track to achieve the goal on gender equality. And with greenhouse gas emissions still rising, we are moving closer and closer to a 3 to 5ÅãC temperature increase, with all the devastation that science predicts.”
With the spread of Covid-19 to all corners of the globe, our mission has become considerably tougher since Amina’s warning. Through the SDGs we learned what was most important to the global community, now it is our job to help those goals be realised.
The positive news is that the challenges facing us are not insurmountable.
Private capital represents more than enough money to address the SDGs. Globally, pension funds alone control more than $36 trillion in investible assets. Insurance companies represent another $18.8 trillion, wealth managers nearly $70 trillion, and banks more than $85 trillion. There are enormous resources at our disposal, but it is
not always straightforward to recruit them to our ends. If even a modest percentage of these resources could be dedicated to addressing these global issues, real progress could be attained.
Bank of America has been working with colleagues at the World Bank Group, with His Royal Highness the Prince of Wales’s Sustainable Markets Initiative and Stanford University’s Sustainable Finance Initiative, the United Nation’s Global Investors for Sustainable Development, as well as other financial institutions to explore innovative forms of financing that can increase the speed and scale of capital being put to work on the SDGs.
One approach is called blended finance. It aims to encourage the flow of commercial capital to SDG-friendly projects that might otherwise be deemed too risky by private investors. A development bank or foundation provides an initial layer of financing and takes on a share of the risk of the investment, allowing others – for example pension funds, insurance companies, commercial banks – to join at the level of risk that suits them.
By mobilising capital in this way, the initial funding can be multiplied many times, dramatically increasing the impact of the intervention and allowing the development organisation to seed many more projects than if it were funding them alone.
The bulk of blended finance is needed to fund sustainable infrastructure projects in developing countries – investments in green energy systems, more efficient agriculture, improved roads, better sanitation, upgrading buildings and so on.
The key players on the development side are those organisations that put up the initial money to improve the real or perceived risk-profile of such investments. This development capital is sometimes provided by aid agencies from donor countries, such as the UK’s Department for International Development, or by private philanthropic foundations such as Gates or Rockefeller.
Multilateral development banks and bilateral Development Finance Institutions are also involved, ordinarily investing on market or near-market terms with a specific development mandate, and are a crucial link to private sector investors, of which banks remain the biggest in the market. A close second are asset and wealth managers, with pension funds, insurance companies, sovereign wealth funds and private equity also all investing in blended finance in large sums.
At Bank of America we recognise the key role that global banks can play in this process.
We are well placed to provide high-risk, high-impact capital that dramatically increases the investment potential of blended finance projects.
In 2018 Bank of America created a $60 million Blended Finance Catalyst Pool to support several of the SDGs including clean water and sanitation (SDG #6), affordable and clean energy (SDG #7), affordable housing (SDG #11) and climate action (SDG #13). We are investing up to $5 million in specific projects in the US and around the world, aiming to attract many times more than that from private investors. In Charlotte, for example, Bank of America’s $2.5 million kickstarter along with some donated land will help to spur a $50 million fund to build affordable housing over the next 10 years.
Bank of America’s environmental strategy cuts across everything we do: from the money we lend, to the way we run our financial centres.
Since 2007, our Environmental Business Initiative has provided more than $158 billion in financing to business activities that create positive environmental change, and earlier this year we set our third target to deploy $300 billion by the end of 2030 – a total investment of more than $445 billion over the period. This year we were proud to announce that our operations are now 100% carbon neutral—ahead of schedule. And we have played a leading role in the expansion of the green bond market, supporting SDG #7 of affordable, clean energy. In addition to being the largest underwriter of green bonds globally, we are the first U.S. financial institution to have issued five corporate green bonds, raising well over $6 billion for renewable energy projects since 2013.
Partnership is the key to the success of this strategy. Since 2018 we have expanded our work with Water.org to support their WaterCredit Investment Fund, a blended finance fund that enables people in need to access small loans for water connections and toilets. We committed a $3 million charitable grant to initiate work in India and Brazil, enabling Water.org’s local partners to mobilise a further $21 million in capital and empower more than 250,000 people with safe water and sanitation.
More broadly, banks and other financial institutions must work together to account for how heir commercial investments affect the SDGs.
Our sector has a critical role to play in accelerating the transition to a more equitable and sustainable low-carbon economy.
This summer Bank of America joined the Partnership for Carbon Accounting Financials initiative, which is developing a framework for institutions to measure financed emissions, and providing a useful tool in the management of these emissions. The Partnership now includes more than 70 banks and other investors, representing more than $9 trillion of assets. The power we have together could be transformative.
To get the world back on track to achieve the SDGs is not only the great moral imperative of our time, but also a business necessity.
The 4 billion people that make up Generations Y and Z will not stand for anything short of the proper strategies for dealing with climate change and generating social impact in everything we do. That is what they expect of their governments, their employers, their favourite brands and their banks.
It is why we are so committed to transforming our own activities and leading others to do the same. Our aim is to cater for this new generation of consumers and to play our part in the movement to accelerate change, guided by the SDGs.
One important way to continue to drive capital toward progress on the SDGs is to align the progress companies are making with investors seeking to invest in that progress.
To help do that, the International Business Council of the World Economic Forum, in concert with Big 4 accounting firms, and led by our CEO Brian Moynihan has developed a set of common ESG metrics that provide a baseline of disclosure across industries. Adoption of these disclosures by IBC companies and others will provide a consistent, transparent, and assurable way for investors and other stakeholders to evaluate and encourage further progress in reaching the goals, and fund them to the level required.
This work is critical for not only communicating to stakeholders – including shareholders – that companies take their commitment to the SDGs seriously, but also for driving convergence in the crowded ecosystem of ESG standard setters and ratings agencies.
The financial requirements needed to fund the Goals show that the private sector must be involved in this movement.
Blended finance and common reporting metrics provide powerful tools to close the gap.
When like-minded organisations pool their skills and resources and deploy capital in this way, we can achieve the promise and collective power of the Sustainable Development Goals.