BoA Cements Its Commitment To ESG Considerations With New Investment Program

Eliane Chavagnon

22 August 2013

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 ; 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.