Green Wombat

Bank of America’s (BAC) this week unveiled a ground-breaking $20 billion green lending initiative to finance companies creating low-emissions technology, underwrite loans for green building projects and create a carbon credit trading service for its customers.  

Bank of America also is changing its underwriting criteria for commercial loans to favor companies that provide "sustainable products, services and technologies. For consumers, BofA will offer, among other eco-friendly products a "green mortgage" with a reduced interest rate or a rebate if their new house meets energy efficiency standards.

Green Wombat talked yesterday with James Mahoney, BofA’s director of public policy, about why the U.S.’s second largest bank thinks fighting global warming is a huge business opportunity for the banking industry – and whether competitors like Citigroup (C), JPMorgan Chase (JPM), Wachovia (WB), Wells Fargo (WFC) will follow its lead.

Green Wombat: Bank of Amercia is not doing this just because it thinks it is the right thing to do. What is the business rationale behind the initiative?

James Mahoney: This goes beyond philanthropy and actually incorporates environmental considerations into the way we do business. It’s an initiative that cuts across our three major lines of business: Corporate and investment banking, consumer banking, and wealth management.   What we see, with the growing concerns about climate change, is that there is going to be an increased demand for both products and services that produce and use energy more efficiently. As efforts emerge to reduce greenhouse gas emissions, there will be new technologies to both produce and use energy. We see business opportunities arising as a result of climate change. This initiative is intended to support customers that want to take advantage of those opportunities. We definitely see this as a growth area in the years ahead.

Green Wombat: What type of commercial customers will be the biggest beneficiaries of the program?

Mahoney: I think technology companies with innovative products, utilities that are investing in green technology and green energy sources will benefit. I think for that matter, so will coal companies that are looking to introduce new ways to reduce greenhouse gas emissions in the years ahead. We think no matter what kind of business you have there are opportunities to produce and use energy more efficiently. As a bank we’re finding there are multiple opportunities to produce green business opportunities in commercial lending, investment banking, and carbon credit trading as that market develops.

Green Wombat: Can you provide more details on the carbon trading program?

Mahoney: We see it as initially primarily European focused. Then in the U.S.. as there’s legislation pending in Congress and passed in California and the northeast [that could lead to regional carbon trading markets]. We would first of all provide advice to our corporate customers on how to manage their carbon operations, and secondly we’d be involved in trading – taking carbon positions and trading the credits.

Green Wombat: Of the various pieces of this initiative, which one do you think has the potential to have the most impact?

Mahoney: I would say the fact that we’re going to be providing favorable consideration to companies that incorporate climate change impacts into their business plans. That’s very important. Second, we’ll be tracking and reporting on this initiative and we’ll create a focus on these type of activities that wouldn’t be there otherwise. I think this could have a very profound impact over a number of years. As carbon markets develop and there is a price for emitting carbon dioxide, it will have tangible, real bottom line impact. 

Green Wombat: Will Bank of America be involved in project financing, say for utility-scale solar power plants or wind farms?

Mahoney: We generally are not involved in project finance. As a general matter, I’d say no.

Green Wombat: What was the genesis of the environmental initiative?

Mahoney:  In 2004, we made an environmental commitment which
dealt with reduction of greenhouse gas emissions from our own
operations and we also adopted a forest policy that restricts lending
in certain forest areas where there could be environmental
consequences. Also, we set up an environmental council that has
representatives from various business lines. The
initiative come from the work of that council, which is charged with
continually trying to improve our environmental efforts.

Green Wombat: Is this initiative a harbinger of change in the banking industry?

Mahoney: I think it’s a harbinger of change for the economy as a whole. We’re moving into an era where the environmental impacts of business will have a price associated with them and those costs will have to be incorporated into a business plan.