Decarbonising In and Out, Sustainable Finance at Bank of America

Welcome to July's Edition of Carbonless Futures. This is the twelfth edition of our newsletter, which marks the one year anniversary of Carbonless Futures! In this special edition, we bring to you not one, but two interviews where we speak with leaders in decarbonisation.?

This month, we spotlight a snippet of the crucial work of our strategic partners of the Hong Kong Green Tech Challenge (HKGTC), Lizette McNeill and Vimal Karpe of IXO Partners , in decarbonising the built environment. We also sat down with Feng Chang , Managing Director of the Sustainable Finance Group at 美国银行 , who shared insights on addressing the most pressing challenges and opportunities in green finance in Asia.

As always, we feature the latest news on decarbonisation in Asia, highlighting our three core pillars: Innovation, Investment, and Opportunity. We welcome your comments and encourage you to connect with us on LinkedIn to share news tips, feedback, or topics you'd like us to explore in future editions.

Diving into Bank of America’s sustainable finance initiatives in Asia

As we usher in an era of rapid decarbonisation in the region, Alexandra Tracy , Head of Research at Carbonless Asia , engages in an insightful conversation with Feng Chang, the Managing Director of the Sustainable Finance Group at Bank of America.

Tell us about the work of the Global Sustainable Finance Group in Asia.? What are your main areas of focus in the region?

The Global Sustainable Finance Group works across Bank of America’s eight lines of business to deliver our firm-wide sustainable finance strategy and achieve our goal of deploying $1.5 trillion in sustainable finance capital by 2030. Guided by our commitment to? Responsible Growth, we aim to grow sustainably and support our clients’ success. Our focus includes helping clients reduce their carbon footprints, identifying and deploying technologies for energy transition, and providing comprehensive financial solutions such as lending, capital raising, advisory, investment services, and risk management.

In Asia, we have a few focus areas. Firstly, capital deployment for mature decarbonisation tech like solar, wind, EVs, and energy storage. Secondly, financing emerging climate tech for industry decarbonisation, such as hydrogen, CCUS, biofuels, and transition carbon credits. Third, advisory services tailored to local transition strategies. Finally, development finance partnerships with governments, MDBs, DFIs, philanthropies, and NGOs to accelerate private capital mobilisation for climate action.

Bank of America has committed to deploy and mobilise US$1.5 trillion by 2030 to accelerate the transition to a low carbon, sustainable economy and inclusive social development.? How important is Asia to achieving this commitment??

Asia continues to play an important role in achieving our sustainable finance goal. Our strategy is to follow our multinational clients with operations in Asian countries, providing them with access to the capital needed to meet their goals.? For instance, a number of our multinational energy, utility and institutional clients form joint ventures with local corporations to build renewable energy projects that require financing.? In addition, our corporate clients with a large part of their supply chains located in Asia need assistance and support as they work with companies in their supply chains on their transition. We recognise the need to develop replicable templates for blended finance transactions which can assist these countries transition to clean affordable energy in a just and equitable manner.

Are there particular challenges or roadblocks to decarbonisation in this region that clients need your help to overcome?? Are these challenges more acute in the emerging markets (EMs) where you work?

Every country’s decarbonisation journey is unique, so are their opportunities and challenges.

Japan, South Korea, and Singapore need to import green electrons or molecules to increase their clean energy supply. Their hard-to-abate industries need low carbon solutions such as hydrogen, e-fuel and CCUS, as key technology levers to achieve net zero. Commercialising these technologies requires cross-border collaborations among stakeholders along the value chain.?

International banks are supporting clients as they implement these solutions, such as project developers with potential acquisition of upstream projects, facilitation of offtake discussions, and monetisation of environmental attributes generated from projects such as carbon credits, tax credits or other certificates.?

Meanwhile, EMs in Asia need more capital to facilitate their energy transition, social development and climate adaptation.? The lack of a supportive policy environment hinders investor confidence in decarbonisation efforts.? For example, renewable energy often needs to compete with heavily subsidised fossil fuels in many emerging markets. Macro factors like high interest rates, costly foreign exchange hedging and higher perceived project risk also make it harder to create bankable projects and mobilise private capital.?

We are actively involved in some of the innovative funding mechanisms that have been developed to address these issues, including the Just Energy Transition Partnerships (JETPs) with Indonesia and Vietnam to accelerate transitions from fossil fuels to renewable energy.

The regulatory environment is complex and rapidly developing in the region.? Is this helping or hindering sustainable development?

Effective regulatory policy sets a level playing field, creating an environment where businesses and investors can allocate capital confidently in transitioning to a low carbon economy. Of course, companies also need supportive capacity to comply with these regulations.?

The adoption of the International Sustainability Standards Board’s framework by regulators in Asia is a welcomed development as it creates a common language for investors to evaluate sustainability risks and opportunities. This is particularly important for attracting international investors and positioning companies effectively.?

Regional taxonomies or sector technology roadmaps in Asia are addressing the transition needs of hard-to-abate sectors and mobilising domestic sustainable finance capital. Japan, for instance, has become the largest issuer of transition bonds, while China's green credit policies have positioned the country among the top global rankings for outstanding green loans and bonds.

Which are the renewable and clean tech sectors that are generating some of the most exciting opportunities in Asia at the moment?

Solar has one of the fastest deployment rates. Projects combining solar, wind and battery storage assets are increasingly common to maximise production, address intermittency and create dispatchable power, improving both economics and reliability. We also see more floating solar projects launching in the region.?

Upgrading and expanding the grid is critical for electrification for the transition to a low carbon economy.? These investments require large sums of capital and directly impact renewable energy transportation and delivery.

The EV sector in Asia is performing well as policy makers offer generous support for both production and sales. India’s electric bus program has attracted significant public and private capital, aiding the decarbonisation of public transport in many cities.

Blended finance is very much in the news currently.? How important is this to your work on financing the low carbon transition?? Do you see opportunities to mobilise more private investment?

Blended finance is an important tool to finance projects in EMs. Public sector funds reduce risk, mobilising private sector investment. The public sector also helps lower overall financing cost to ensure projects’ economic viability. Grants, concessional capital, first-loss capital, mezzanine tranches, credit guarantees, and political risk insurance can all be leveraged to create appropriate risk/return profiles for private sector capital while maintaining affordable financing costs for borrowers.?

Bank of America participates in a number of international organisations focused on capital mobilisation in emerging and developing economies. We are members of the JETPs for Indonesia and Vietnam, co-chair UN Global Investors for Sustainable Development Alliance’s (GISD) workstream to enhance private capital mobilisation through blended finance with MDBs and DFIs, and are a member of UN GISD’s workstream on tackling local currency risk and co-chair the Sustainable Markets Initiative’s Blended Finance Taskforce.

Looking ahead, crowding in private sector capital needs to become part of the KPIs for the public sector to evaluate the impact and effectiveness of its capital deployment. Dialogue among the public sector, regulators, rating agencies and the private sector is critical to developing blended finance mechanisms which will scale private capital mobilisation for emerging and developing economies.?

What role do you think carbon markets will play in decarbonising Asian businesses, especially in the “hard to abate” sectors?

Carbon markets are crucial. They provide financial incentives for businesses to pursue emissions reduction activities. Without a functioning carbon market or an effective carbon price, it’s hard for companies to plan large capex for decarbonisation while maintaining short-term competitiveness.?

As the marginal abatement cost curve shows, when you have low or no carbon price, most emissions reduction activities will show up as a cost to the business and this slows down the transition.?

For high-emitting sectors, decarbonisation also involves potential early retirement of higher emission assets. To do this in a just and equitable way, there needs to be funding to incentivise the current asset owners and mitigate any social impacts.? We are engaged in mechanisms like the Transition Credits Coalition (TRACTION) and the Energy Transition Accelerator (ETA) that are developing innovative carbon finance tools to support these carbon markets and efficient transition.???

How optimistic do you feel after COP 28 in Dubai???

I am optimistic.?

Progress will require businesses – large and small and in every sector – recognising the opportunity before them to gain market share, grow revenue and invest in new technologies.

This is already working, especially as many clean technologies are becoming cost-competitive with fossil fuels. Companies are recognising that investing in decarbonisation is both an environmental and economic decision.?

At Bank of America, our clients, suppliers and partners have their own strategies for energy affordability, sustainability and security. They increasingly seek guidance from us, and we are well positioned to assist them. We offer advice and expertise across industry sectors and deliver financial products, such as lending and investment capabilities, equity and debt capital market activities, and advisory services to help our clients operate more sustainably and achieve their goals.

Innovation | Investment | Opportunity

Innovation

• Vietnam’s solar and wind energy startup raises $10m from Clime Capital
• Microsoft invests in advanced metals recycling company Cyclic Materials

Investment

• Chinese climate disclosures drive emission cuts
• GIC’s new initiative aims to bridge green assets funding gap

Opportunity

• The era of electric arc furnaces (EAF) in steelmaking technology
• Trading volumes surge on China’s carbon market

Decarbonisation Inside and Out

A snippet of the interview with the founders supporting Hong Kong's green building space and our Challenge.

When it comes to decarbonising physical buildings, impact must be driven from both inside AND outside. That is what one of HKGTC’s Strategic Partners, Inside X Outside IXO Partners , believes.?

Our community lead ?? Fangqin Chuah (蔡枋芩) sat down with Lizette McNeill and Vimal Karpe , the Managing Partners of decarbonisation engineering and advisory firm IXO Partners , to understand the work they do and how their expertise is providing a significant boost to the Challenge and the startups that apply.

Could you share more about IXO’s story and your role in IXO?

Vimal: IXO stands for Inside cross Outside and our firm is focused on decarbonisation engineering and advisory. We are civil engineers with a combined experience of 27 years working in the building industry. We have worked on end-to-end projects, from engineering design through to construction-stage execution, as well as dealing with issues post-construction - meaning investigation and remediation of defects during the operational life of a building. Before our current roles as Managing Partners of IXO, we had worked as engineering consultants for MNCs locally and internationally on some significant global projects. We founded IXO to drive decarbonisation, using our construction knowledge and use it to drive practical targets and measurable actions during the investment and pre-planning stages.?

How do you see your partnership with the Hong Kong Green Tech Challenge contributing to the long-term success and impact of the participating startups?

Lizette: The Challenge focuses on mature technologies, which we see as useful and a key differentiator.? While early-stage solutions are promising, it can be difficult to envision their development, application, and real impact. In contrast, mature technologies provide a clearer link between technology and application. This makes it easier to scale their impact and address the complexities in the architecture, engineering, and construction (AEC) industry.

Vimal: There is also a really interesting aspect here around Project Partners offering to pilot technologies on current or near-term projects. This is not common for most green technology challenges and presents a significant opportunity to implement, test in the market, and upscale solutions. Furthermore, as the HKGTC moves into implementation stages, we see it as our role and also our responsibility to advise on risks and opportunities along the entire journey. As an end-to-end advisory firm we would therefore continue to underpin the ecosystem; to support the Carbonless Asia team, HKSTP - Hong Kong Science and Technology Parks Corporation , the startups and potentially the Corporate Partners, in defining and helping to mitigate risks around critical engineering-related design, construction and post-construction considerations.

Read the rest of the interview here.

Carbonless Research

Rapid decarbonisation in Asia is a must, but availability of high quality data and analysis of the related challenges and opportunities tends to be limited, especially in emerging markets - which restricts capital flows and technology deployment. Carbonless Research addresses these information gaps by creating customised research projects for policy makers, investors, corporates and more.

We develop analysis, tools, market scoping and policy briefings, incorporating unique insights from our work on decarbonisation across the Carbonless platform.? Contact us to learn more: [email protected]