On March 6th Bank of America, one of the world’s largest financial institutions, announced that they were committing $20 Billion to support growth of environmentally sustainable business enterprises and activities, especially those that address global climate change.
For corporate clients the commitment by Bank of America will provide financing for projects spanning LEED certified commercial real-estate, brownfield redevelopment, smart growth and carbon emission trading. For individual clients financing will be available for green home construction (green mortgage products) and green investments in sustainable forestry. The company has also committed to have its facilities LEED certified.
$20 billion is a lot of dough – but still relatively small in relation to other “investments” in our future like the War in Iraq. In fact the Bank of America commitment is just 20% of what the U.S. spent in Iraq in 2006, according to some projected estimates. If this sounds somewhat cynical, it’s meant to be. Imagine the progress that could be made if Bank of America had “matching funds” for their social investment from the government.
Now, of course the U.S. government funds a good share of sustainable projects, but is it enough? The U.S. Department of Energy (DOE) recently announced their $365 million investment for the development of six cellulosic ethanol plants and their FY 2008 budget request of $24.3 billion including $1.2 billion for the Office of Energy Efficiency and Renewable Energy (EERE News). Considering that Bank of America’s $20 billion commitment is 16 times greater than the annual budget request of DOE’s Office EERE, we have to consider: Is the role of business outpacing the role of government in creating a better world?
The hidden value of sustainability practices are now being unveiled to Wall Street, government and society. Investment firms and large financial institutions like Bank of America are driving this new economy based on making corporate responsibility tangible. This new economy is one that is being shaped by a myriad of past mistakes, promise for the future, and real-time transaction. The rate of speed at which this occurs is furious. And, businesses have taken on a new role in transforming this new economy by advancing social response product development and a focus on providing value to not only direct customers, but to all stakeholders. Consider some of the following trends:
Social Investing - $2.3 trillion of the investment dollars under professional management are invested in socially responsible companies that have been screened for their governance, environmental, social and corporate responsibilities efforts globally (Social Investment Forum, 2005).
Social Response Product Development – Making better products; products that have social, environmental and sustainability virtues and values embedded in them; is the current state of the competitive business world. Toyota’s hybrid vehicles, Boeing’s fuel efficient 787 Dreamliner, Sun’s UltraSPARC T1 eco-responsible microprocessors, and Suncor’s commitments to integrating renewable energy technologies into their portfolio are all examples of this strategy unfolding in the marketplace. This is not a “green” trend; it is a strategic decision to differentiate and offer better products for a better world on behalf of these giants see World Inc.
Responsible Lending - More than 45 banks and financial institutions representing more than $4 trillion in assets under management have subscribed to the Equator Principles, a set of voluntary guidelines governing environmental and social investment for international project finance. Financial institutions including Citigroup, HSBC, ING, JPMorgan Chase, Wells Fargo, Wachovia, and Royal Bank of Scotland are just a sample of the global finance leaders that have adopted the principles into their lending practices (Equator Principles).
Power of Philanthropy - The year 2006 was an incredible year for billionaires. Not only did they have a successful year of returns, they also returned billions to society. In June 2006 Warren Buffet announced that he would give away 85% of his fortune built in Berkshire Hathaway and the largest share, some $30 billion would go to the Bill & Melinda Gates Foundation (FORTUNE Magazine). The Bill & Melinda Gates Foundation has committed billions toward fighting disease globally as well as reducing poverty and hunger (Bill & Melinda Gates Foundation). And with a focus on energy and climate change, global health, poverty alleviation and mitigating religious and ethnic conflict, the Clinton Global Initiative emerged in 2006 with a $7.3 billion pledge from 215 sponsors to continue these efforts globally (Clinton Global Initiative).
This new economy is more than a trend. It is being cultivated in front of our eyes and it is being reported more frequently by mainstream press, see Business Week’s Beyond The Green Corporation article from January 29th magazine as a recent example. Globally and regionally new economies are being formed and re-shaped by corporations designing better products, by a new era of philanthropists, and by a transformational shift in how we think about – and invest, spend, use and make – money.
What other trends on money and markets do you see shaping this new economy we call ‘social response capitalism’? Let us know at Mark@ahcgroup.com.
Mark C. Coleman
March 12, 2007
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