Bank of America is homing in on what it views as one of the most “pronounced trends” in recent years - growing interest among clients to explore social impact investment options.

Bank
of America’s investment business is homing in on what it views as one of the
most “pronounced trends” in recent years - growing interest among clients to
explore social impact investment options - by launching a new program centered around three environmental, social and governance
themes.

The topic of environmental
stewardship involves an examination of water, alternative energy, climate change
and clean technology; human capital practices considers “gender lens” investing
(investments focused on improving the lives of females and faith-based
investing); and corporate governance involves focusing on corporate
transparency, disclosure, reporting and incentives.

“One
of the most pronounced trends we’ve seen in recent years is the call for wealth
to have a productive impact on our environment, our communities, and our
society broadly, in addition to earning an investment return,” said Andrew
Sieg, managing director and head of global wealth and retirement solutions for
BoA Merrill Lynch.

Merrill
Lynch Wealth Management and BoA’s US Trust now offer some 180 ESG-themed
investments to individual and institutional investors, including mutual funds,
exchange-traded funds, separately-managed accounts and alternative investments.

The
premise that a blend of environmental, social and governance factors can
influence investment performance is not a new idea, but
it has certainly gained momentum in recent years - particularly in light of regulatory changes brought about by
the financial crisis. As BoA highlights, as well as mounting interest in
values-based investing, some investors are using shareholder advocacy to
express their views.

Indeed, yesterday Family Wealth Report carried news that Mellon Capital Management, a
multi-asset manager for BNY Mellon, has become a signatory to the United
Nations-backed Principles for Responsible Investment - a network of
international investors collaborating to enforce six principles for responsible
investment.

Meanwhile, a growing number of wealth management firms are signaling their commitment to the consideration of ESG factors within their practices by making key recruits. In May, for example, Aviva Investors - the global asset management business of Aviva - brought in Adeline
Diab as head of integration for its global responsible investment team,
based in London.

Facts and figures

According
to recent BoA research, 45 per cent of high net worth investors view investment
decisions as a way of expressing their social, political and environmental
values, while six in ten feel they can influence society through the companies
and projects in which they invest. Meanwhile, 63 per cent said they would not
invest in a company that has a negative impact on society or the environment,
regardless of return potential.

Chris
Wolfe, chief investment officer of Merrill Lynch Wealth Management’s private
banking and investment group, pointed to a 2012 study by the Forum
for Sustainable and Responsible Investment, which found that values-based
investing represents $3.74 trillion - 22 per cent higher than the $3.1 trillion
logged in SIF’s 2010 report. And there is evidence that investing according to
one’s principles can generate competitive returns, he added.

Farha-Joyce
Haboucha, director of sustainability and impact investing, senior portfolio
manager and managing director at Rockefeller Financial, previously told this
publication that in terms of the most pressing ESG-related challenges, corporate
governance ranks among the top concerns.

“Corporate
governance continues to be a major concern, due partly to the size and nature
of the incentives involved in the management of many firms, and the effect
those incentives can have on the long-term performance of a company,” Haboucha said.

Last year, BoA formed an ESG Council to examine institutional and individual client
demand - across the wealth spectrum - for investments that reflect their
environmental and social values. More recently, BoA's US Trust launched a proprietary
strategy called Environmental Stewardship and Sustainability which seeks to identify stewards
of the environment by assessing energy practices, carbon footprint reduction and
process efficiency.

The
bank said that, over the next ten years, it will drive “no less than $50
billion” of business that consists primarily of lending, equipment finance,
capital markets and advisory activity, carbon finance, and advice and
investment solutions in areas including energy efficiency, renewable energy,
transportation, and water and waste.

It
will also funnel $100 million into grants and program-related investments to
non-profit organizations, community development financial institutions and
other NGOs promoting low-carbon and resource conservation solutions, it said.

Click here to view a recent article looking at how impact investing has “got the city
talking” but shouldn’t necessarily be lumped together with socially-responsible
investing.