Bank’s Net-Zero-Emissions Financing Pledge May Impact Board Climate Change Strategy

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Forward thinking boards view climate change as an opportunity to reposition their business to capitalize on a coming trend. And shareholders aren't letting go of it any time soon.

Bank of America announcing its commitment to achieving net-zero-financed emissions by 2050 should serve as a reminder that corporate boards need to develop climate change strategies that take advantage of the financial industry moving away from financing projects that involve fossil fuels. With major banks Morgan Stanley, JPMorgan Chase and Bank of America all stating they are moving away from financing fossil fuel projects, boards should consider how the potential lack of growth in fossil fuel industries may impact their company growth down the road.

When three of the largest financial institutions agree on where they are likely to allocate resources, all companies should take notice. Climate change policy is fast becoming an area that can make a material difference in a company’s financial future, and boards are going to be scrutinized more closely on the policies they put forward in 2021 and beyond.

Shareholder groups such as As You Sow, Arjuna Capital, Boston Common Asset Management and Mercy Investment Services have filed several climate change-focused resolutions over the last few years aimed at getting financial institutions to reduce the greenhouse gas emissions associated with their financial activities. As You Sow and Arjuna Capital withdrew their most recent climate change proposal after Bank of America announced its commitment to net-zero-financed emissions.

In a statement, As You Sow president Danielle Fugere said “This commitment positions BofA to thrive in the rapidly evolving net-zero economy. It will also catalyze decarbonization across the economy, signaling the necessity for businesses to move onto a net-zero transition pathway, or find access to capital more costly or limited as money flows to low carbon activities.”

The banks are supporting net-zero emissions policies because research indicates there is a growing market in that area. Bank of America recently named climate change as this decade’s most important theme, estimating that investments in energy transition efforts needed to increase to $4 trillion a year, which could lead to about $100 billion a year in research and development. Sectors that could benefit include renewables, electric vehicles, and environmental, social and governance-related fields.

Bank of America’s head of global thematic investing research, Haim Isreal, told MarketWatch, “We believe climate strategies offer a route to global supremacy. Whether through regulation, limits on exports, tariffs or significant investments, we believe the U.S and China will do whatever it takes to lead on climate action.”

Corporate boards can deny climate change is an issue that will affect their company or they can be forward thinking and view climate change as an opportunity to reposition their business to capitalize on a coming trend. At the very least the issue is worth studying because shareholder concerns about climate change are not going away.

• Boards can create a committee that will work with management to research the impact of climate change and then report back to the full board. The positive and negative impacts of climate change must be explored, with committee members open to different types of solutions to problems and options for opportunities. As we’ve seen in recent years, climate related disasters can affect a company’s supply chain, so companies need to prepare for such events and have plausible solutions in case those situations materialize. Are there easy fixes that can be implemented now that can prevent climate related events from becoming major disruptions? All companies need those answers now.

Alternatively, are there opportunities for joint ventures with other companies to provide support for others who are dealing with climate related issues? Teaming with other companies to solve climate related problems can open up new lines of business that weren’t previously considered. Committing several directors to pursue these issues can be very beneficial.

• Boards can adopt net zero emissions policies that can help the company save money and improve relationships with shareholders. Since research shows that governments will likely move toward more aggressive regulations involving carbon emissions, companies should adopt as many behaviors that will cut carbon emissions now. Reducing carbon emissions can sometimes save money and it will position companies to benefit from any tax benefits offered for transitioning away from fossil fuels. Such adjustments may improve the company’s financials and keep investors from filing shareholder proposals in the future.

• Boards should look to add climate change experience within the next two years. Understanding how climate change can have a positive or negative impact on an industry will be increasingly important over the next decade. Finding a new board member with “climate change experience” would be difficult, so most boards will likely have to approach this differently. Boards can designate individual directors to volunteer to increase their knowledge on the subject if they don’t have someone with specific climate-related experience already. Boards can also bring in consultant companies to evaluate the company’s climate related risks in concert with management and several directors in order to increase the pool of individual at the company with an awareness of how climate related issues can affect their industry.

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