A Playbook to Address Global Challenges

Some of the world’s biggest thinkers are coming together this week in Davos for the World Economic Forum to discuss the challenges we all face, and to no one’s surprise, there won’t be any shortage of things to talk about. It would be easy for conversations to barely scratch the surface of what we’ll need to solve as a global community in the coming years. We have to push ourselves to craft effective, sustainable solutions to the challenges that impact all of us – from climate change to safe drinking water, affordable housing, and gender equity.

These issues have an impact on the bottom line of every business, regardless of whether you’re a mom and pop shop or a multi-national corporation. Just take climate change. If we do nothing to curb its effects, then our global markets become less stable and the cost of doing business skyrockets as a result of food shortages, natural disasters, declines in travel and tourism, insurance rates, and much more. It will impact all of us.

At Bank of America, we are focused on responsible growth --– meaning we understand we must grow the right way – rooted in our values and in service of our clients. Our growth is inextricably linked with the growth of the global economy and our ability to help to our clients grow. It can’t be focused on one client or investment; it must be put into the broader context of what it means for the global economy – and how it will continue over time.

As one of the largest financial institutions in the world, we’re in a unique position to use capital to drive global change.

That’s why capital deployment plays a central role in how we approach solving problems at all levels, in all markets across the world. Working together with other sources of capital such as private equity firms, governments, nonprofit organizations, venture capital firms, and development banks, we are using innovative financing structures to dramatically increase the flow of capital to address the long term sustainability of countries and people around the world.

So, what will it take to move get more capital moving? We need to do three things.

First, we need to make these projects less risky so they can attract the trove of untapped funding sources that might otherwise be limited to projects deemed ‘safer.’ Jim Yong Kim, President of the World Bank, recently estimated that if we were to de-risk more projects that address social challenges, there is nearly $10-13 trillion sitting in negative investment accounts that could be used to fund them. We can’t afford to leave money like that on the sidelines.

We only need to look at the recent past to see why de-risking is so important. Just five years ago, climate investments now considered “no-brainer” business opportunities – like financing wind turbines and solar energy – were thought of as innovative and high-risk. Today, the costs of both types of projects continue to fall, and are becoming more and more effective at converting renewable resources into usable energy.

As a result, today, billions are being invested in renewable projects, where they might have been diverted to fossil fuels in the past.

Another way we can look at reducing risk is by creating new vehicles that are inherently less risky – like Bank of America's pioneering efforts on green bonds. Just five years ago, we issued the first ever corporate green bond – since that time we've issued a total of $2.1 billion in green bonds, with all proceeds funding renewable energy and energy efficiency projects.

Bank of America has also been the largest underwriter of green bonds since 2014. A decade ago green bonds were barely a concept. Today, because Bank of America has taken the lead in that space Moody’s estimates that Green bond issuance is expected to surge to more than $200 billion.

This is a clear example of how things change over time, and why if we can effectively de-risk certain projects to an appropriate level we could unlock and attract a whole host of new capital.

Second, underpinning all these efforts is a reliance on partnerships. Capital comes in many forms - private equity, philanthropic dollars, or government funding - and combining them often strengthens the overall project. Not only do these types of blended funding approaches provide another way to lower risk by distributing it across partners, they also bring a diversity of thought and perspectives to address these challenges.

For example, to address San Francisco’s housing crisis, Bank of America partnered with the City on a Rental Assistance Demonstration (RAD) program in which we provided a comprehensive and innovative financial solution totaling $2.2B to rehabilitate 3500 affordable housing units for ten thousand people. It was one of the largest affordable housing deal in U.S. history, and has been heralded as a model public-private partnership. Through the RAD program, for every dollar in new public capital, an additional fourteen dollars of private capital is being leveraged. In this case, the Mayor’s willingness to commit political support, City staffing, and a relatively small amount of new capital de-risked the transaction sufficiently so Bank of America could make its investment – the end result is that we worked together to solve part of a problem that has plagued the City of San Francisco for decades. It’s a strong example of how to bring different entities together to do what they do best toward one common goal.

Finally, projects can’t just be about social good, they must also be smart business with competitive returns. To expect the business community as a whole to get behind these types of projects and generate the participation we need to scale up real solutions, they need to present the opportunity for competitive returns.

We’ve already seen examples of how this can work. Through our work with private equity firm TPG on The Rise Fund, our goal is demonstrate how core business strategies can drive social impact projects, adhering to the principles that would guide any traditional business decision. All projects funded through the program have shown they can withstand the rigor of a thorough review, making sure they will address a societal need, but also meet expectations on profit.

No social challenge we’ll discuss at Davos will have a small or easy solution. Indeed, there is still a wide gap between capital needed to take on these big problems and the capital that is currently available. To address climate change alone, The International Energy Agency estimates it will take close to $2.25 trillion every year. This means that achieving real results will require fresh approaches and a new playbook.

Bank of America’s capital deployment strategy lays out part of this roadmap – create innovative financing solutions to lower investor risk, create partnerships that both distribute that risk and bring diverse perspectives to the table and ensure these investments deliver not only social good, but importantly investor return.

Our vision for a better future doesn’t just mean imagining a world devoid of poverty, hunger, or pollution and full of opportunity for all - it also means working every day to find ways we can deploy our capital to help fuel this progress. I challenge others in the private sector to imagine their vision for the future – and how they will use their business to help us all move forward together.