Solving the SDG Funding Gap
By Alex Liftman, Global Environmental Executive at Bank of America
There is a significant gap between the capital that must be applied to achieve the United Nations Sustainable Development Goals (SDGs) and the amount that is currently being invested.
Estimates say approximately $6 trillion per year is needed to address the SDGs; the current annual funding gap is as much as half that. Narrowing this financial gap and accelerating development and adoption of solutions across the globe will take collaboration and action across public, private, community and philanthropic sectors. That is where sustainable finance comes in to help.
FINANCING CLIMATE SOLUTIONS
As a global financial institution, Bank of America has a role and responsibility to play in accelerating the transition to a low-carbon, sustainable economy. As part of our Environmental Business Initiative (EBI), Bank of America is advancing progress on SDGs related to climate, energy and the environment. By 2030 we will have deployed more than $445 billion in capital to low-carbon, sustainable business activities. We’re working with our clients, collaborating with financial peers and partnering with environmentally focused non-profits to narrow the gap between the amount of capital that must be applied to these global challenges and what is being deployed today. These efforts are driving economic value and producing innovative solutions. As these projects gain scale, investment risk is lower and the cost of financing early innovations and newer sustainable business models is reduced. In turn, this allows for greater capital flows to support more environmentally focused business opportunities.
While these financing efforts increase the number of viable projects, there is much more that needs to be done so sustainable business activities can have a greater impact. That is why we set a third commitment as part of our EBI to begin in 2020 and deploy an additional $300 billion in capital by 2030. The first two goals under our EBI (2007-$20 billion; Current-$125 billion) have had a significant economic impact that has created innovative clean energy solutions and supported jobs in the renewable energy sector.
A recent analysis by EY demonstrates how our current $125 billion commitment is accelerating the transition to a sustainable economy while supporting new jobs and economic growth. The report evaluated $41.6 billion in direct Bank of America financing of projects in the U.S. in renewable energy production, construction of energy-efficient buildings, energy conservation measures, water infrastructure upgrades, and improvements to urban transit infrastructure. This financing facilitated the avoidance of an estimated 23 million metric tons of greenhouse gases and 518 billion gallons of water. Additionally, the analysis estimates that in 2018 alone, our environmental finance efforts supported 159,998 U.S. jobs, with all project types supporting a higher than average compensation, and helped to contribute $51.4 billion to U.S. GDP (2013-2018).
ACCELERATING THE IMPACT THROUGH INNOVATION
Moving the dial on global issues like climate change requires going beyond business-as-usual financing to find innovative approaches that can help attract a larger share of capital from a broader set of investors. Bank of America is looking for ways to deploy its capital in partnership with philanthropic and public capital to help mobilize private capital at scale for otherwise difficult to finance solutions. For example, in November 2018 we launched the Blended Finance Catalyst Pool, which provides an initial allotment of $60 million in capital – and the opportunity to stimulate much larger multiples of private capital – to help finance the SDGs. The pool specifically focuses on affordable and clean energy (SDG7), sustainable cities and communities (SDG11), clean water and sanitation (SDG6), and climate action (SDG13).
At Bank of America, we have helped lead the development of the green bond market, helping companies and municipalities to tap into the debt market to finance their own sustainability initiatives. We have issued four corporate green bonds ourselves, totalling $4.35 billion, and just this year we issued our first social bond for $500 million, becoming the first U.S. bank to do so. The bond’s proceeds will refinance our investments in affordable housing and community development financial institutions (CDFIs). By helping clients access capital through these and other products like green loans, green asset-backed securities, tax equity investments and other industry leading financing instruments, we are also helping to address issues such as climate change, availability of affordable housing and access to clean water – building healthier, more sustainable communities.
COLLABORATION IS THE KEY
Achieving the SDGs by 2030 will not be easy, and it is incumbent upon government, business and civil society to come together and mobilize our collective resources to move society forward. As climate change places social and economic challenges on communities around the world, Bank of America is deploying our global resources to be part of the solution, and our sustainable finance strategy is spurring new business growth in environmentally focused companies and projects. We will continue to pursue efforts to bring together leaders from across the entire financial system to catalyze a greater flow of global investment into low-carbon, sustainable business opportunities addressing climate change. By empowering a sustainable transformation now, we can build a better planet for future generations.
As a member of both The Climate Group’s RE100 and EV100 initiatives, it is an honor to be part of Climate Week NYC again this year. As The Hub opening day presenting partner, we were pleased to join other leaders across sectors to accelerate the transition to a low-carbon, more sustainable economy.