Oct 18, 2007
Seattle Chamber of Commerce Regional Leadership Conference
Vancouver, British Columbia, October 18, 2007
I am happy to be with you for this regional leadership conference and for the opportunity to talk about the business of climate change and why we at Bank of America believe that it represents a new leadership opportunity for our business, whether our business in corporate and investment banking, in wealth and asset management (the division of the bank that I have the privilege to lead), or across our consumer and small business banking franchise of 55 million retail customers and 6,000 banking centers nationwide.
Back in March, Bank of America announced a new, ten-year $20 billion environmental initiative to address climate change and encourage sustainable business practices through our lending, investing, corporate philanthropy and the creation of new products and services. This initiative is
what I'm going to talk about today.
But first, I want to set some context, thereby answering the question, "Why are we interested in climate change?" Our efforts are at least three years in the making. They grow out of a sense of corporate responsibility, the right thing to do. When we started, few of us at the time fully appreciated how important this would become.
Back in 2004, oil traded for as low as $28 a barrel. The average retail price of a gallon of regular gasoline was as low as $1.51. Fast forward three years later: gas has topped $3 a gallon and oil now trades above $80 a barrel.
As this conference demonstrates, more businesses like us are looking beyond risk management, beyond the commodity cost, to the business opportunities presented by the economic and environmental questions raised by dependence on fossil fuels.
The early movers have started to weave this into corporate strategy. Last month, the Carbon Disclosure Project revealed that 76 percent of the world's largest companies that participated in the survey have a carbon reduction program in effect, and 82 percent see new commercial opportunities on the horizon. At Bank of America, we are pursuing both. By that measure, we are not unique.
Yet, that same survey also revealed that climate change efforts have yet to receive commitment from top management at most of these same companies. And that is where Bank of America's experience differs greatly from the norm in the survey.
Our CEO, Ken Lewis, gave us the mandate that steered us to the business opportunities: that every part of Bank of America would own a piece of this commitment... beyond our core operations and supply chain management to every operating line of business.
So, in my talk today, the first set of opportunities I want to outline for you will cover our carbon reduction efforts: how our business impacts climate change directly and where we see opportunities to improve what we do in our core operations.
After that, I'll talk more at length about where we see new opportunities for top line growth, for first mover advantage in new markets and differentiation as an innovator and early adopter.
We began down this road where so many of us have, by examining our operations for cost savings that would improve our bottom line while at the same time reducing our green house gas emissions.
Banking is not a carbon intensive industry. The CO2 our business emits comes primarily from our buildings, the energy we use to run our offices and our use of paper. So, let me address all three.
At Bank of America, we have adopted aggressive, voluntary targets to reduce our own greenhouse gas emissions across the franchise to nine percent below 2004 levels by 2009. Putting that stake in the ground forced us to examine everything we do with an innovative, open mind.
As part of our $20 billion initiative, we will invest $1.4 billion to achieve Leadership in Energy & Environmental Design (LEED) certification of all new construction of office buildings and banking centers over the next 10 years. Among these are the largest office building under construction in New York, a new tower at our headquarters in Charlotte, and our latest new building in Seattle. Even as we renovate floors, as we are doing in my home office in Boston, we score our projects under LEED certification to achieve maximum results.
Bank of America Tower at One Bryant Park in Manhattan will be the first high rise office building constructed which aims for Platinum LEED designation. Upon completion next year, the $1 billion project will be the world's most environmentally responsible office building.
Fifty percent of building materials are coming from within 500 miles of the site. It will make creative use of daylight and automated, light dimming window shades. Sub floor air distribution will allow for climate control at each individual work station. Our capital costs will be higher, but energy consumption will be 50 percent lower than a conventional building - a good investment for our company, and a good investment for our environment.
In Charlotte, our Corporate Center has the first interior of a commercial building to receive Gold LEED certification in North Carolina. And near Seattle, we are constructing a new operations facility to Silver LEED standards, close to the Sound Transit commuter rail station.
The opportunity does not end there. Our footprint includes 97 million square feet of office space nationwide. Corporate workplace at Bank of America is a $3.8 billion expense line and capital budget. So, our scale gives us considerable leverage as a purchaser of building materials and services, from energy efficient lighting to energy star appliances, Greenguard furniture, millwork that adheres to recognized forestry certification standards, and new LEED compliant carpeting, paint and wall coverings.
In addition to reducing greenhouse gases, these investments will help make Bank of America an even more desirable place to work as better climate control, natural lighting and healthier materials lead to a world class work environment. And we know and believe that happier associates are the best at keeping our clients happy.
We have also been able to adapt to the realities of the way the next generation of associates prefers to work while focusing on reducing our impact on the environment.
Our newer and younger associates want more freedom from spatial work limitations. They want the option of working remotely. They want to balance work and home life. And they see employers who can be flexible in these matters as more attractive.
Across the U.S., about 28 million workers participate in some form of alternative work program. At Bank of America, we have a two-year-old initiative called My Work, a flexible workplace program that gives associates options of where to work.
The associates can exchange dedicated workspace in an office for the flexibility to work from home, or to work from shared space in satellite suburban offices, drop-in centers, or from any other location that is viable. We have 2,000 participants in our program nationwide (about one percent of our associate population) and growing.
By bringing work to the associate – to where they would prefer to be – this lowers our building costs per square foot and our volume of square feet per full time employee. And our workplace policies become a differentiator in recruiting.
Think about this: Americans burn 23 billion gallons of gasoline getting to and from work each year. According to the U.S. Department of Energy, the U.S. population will grow 23 percent from 2005 to 2030, but over the same time, vehicle miles traveled will increase 59 percent.
Transportation is already the second largest source of carbon emissions in our economy, responsible for 1.5 billion tons of CO2 being emitted a year. Giving associates the option to reduce their commuting by just one day a week would reduce the gas they consume in commuting by 20 percent. And 40 percent of commuters in large metro areas spend more than 30 minutes commuting to work each way. Giving back some of that time can lead to a better work life.
In addition to flexible work arrangements, we also offer $3,000 rebates to any associate who buys a hybrid vehicle.
So, we're saving on energy. We're helping our associates save on gas. The last cost saving example I want to share with you is paper.
As you can imagine, a business that employs 200,000 people and generates statements for 55 million customers can consume a lot of paper.
Since 2000, we have reduced internal office paper usage per associate by 42 percent. Eight million Bank of America customers have signed up to receive electronic statements. That saved us from having to send more than 41 million statements in the mail last year.
Our online banking website ranks among the 15 most visited websites in the U.S. Two-thirds of all bills paid online in the U.S. are done so through Bank of America's ecommerce platform.Yet, eight million customers choosing electronic statements is only a fraction of our customer base. So, the real opportunity for us is how to get the other 47 million to switch, too.
If cost savings such as these represent the low hanging fruit, then the other set of opportunities I want to spend the rest of my time on are the saplings that need years to grow before they mature and reach fruit bearing age.
Eighteen billion dollars of our $20 billion initiative will be met through financing, advising and creating market capacity to help corporate and investment banking clients develop energy-efficient or low-carbon technologies and to help clients adopt green and low-emissions technology. Our Commercial Real Estate Banking group will finance the largest share.
Across the American landscape, green buildings are going mainstream. From our vantage point, this is one of the fastest growing business opportunities we see.
Last year, the commercial green building industry represented a $15 billion market growing at the rate of 40-50 percent a year. At the end of last year, sustainable green building projects accounted for six percent of commercial construction in the U.S. By 2009, they are projected to account for 20-25 percent.
How big is the opportunity? According to a report in the Los Angeles Times, two-thirds of all structures in the U.S. by the year 2050 will have been built between now and then. This means 89 million new or replaced homes and 190 billion square feet of new commercial space.
In the years ahead, going green may give property owners an edge in attracting tenants, which could mean faster lease up, better rents, more positive cash flow, reduced risk and higher returns.
When you consider what kinds of buildings will be obsolete due to the rise of global warming, from a lender's and underwriter's perspective, the risks of not building green are growing.
Making unconventional green buildings work financially often requires expertise in the use of tax credits and other public subsidies. We are building upon our considerable expertise here to capture a larger share of the opportunity.
Between 2004 and 2006, our bank invested more than $200 million in Low Income Housing Tax Credit equity in projects that meet green criteria.
One was HighPoint, the Seattle housing authority's largest housing redevelopment effort under the federal HOPE VI program to make public housing environments more livable. We did the project in partnership with the Green Communities program of Enterprise and the National Resources Defense Council.
Because of the large amount of embodied energy stored up in existing buildings, some people will tell you that the greenest building is one that is already built. In Seattle, our bank recently helped with various financing needs of nearly $70 million to rehab an 18-story office building constructed in 1929 into a contemporary facility for medical and dental offices. Adapting older buildings for a greener future is a segment rich in opportunity for us.
In August, our Energy Services group joined with the San Jose school district in Silicon Valley to make it the largest solar powered school system in America.
By leasing solar panels from Bank of America (the panels are installed and operated by Chevron), the school district will save $25 million in energy costs over the life of the system, reducing carbon emissions by more than 37,000 tons. And Bank of America will make money from the project.
On the consumer baking side, green residential construction remains on the cutting edge. Bank of America already offers $1,000 rebates on mortgages to purchase homes meeting Energy Star specifications.
Across our bank, some of the most exciting and entrepreneurial opportunities in response to climate change are appearing in our investment banking and capital markets groups.
This year, our investment bank helped bring public Ocean Power Technologies. The company has technology that generates electricity from waves, using buoys anchored three miles out in the ocean. The buoys convert the bobbing motion of steady waves into electricity that is transmitted to shore through an underwater line. They have one in the permitting process in Oregon and the company's engineers estimate that there is enough wave energy in 300 square miles of ocean off California to power that entire state.
In addition, the bank is acting as a financial advisor to Iberdrola on its proposed acquisition of Energy East. The Spanish company serves 20 million customers worldwide. It is the largest wind energy producer in the world and is developing one of the largest wind power sites in New York.
According to the United Nations Environment Program, $100 billion in investment capital flowed into the renewable energy sector last year: "And while renewable sources produce only two percent of the world's energy, they now account for about 18 percent of worldwide investment in power generation."
Our Strategic Investments team, which makes investments on behalf of the company, is actively seeking partners with promising solar technology that our banking centers could deploy to produce electricity. The team is also looking at ways to generate energy from methane produced by solid waste.
The most innovative thing the team has done to date is to loan $65 million to the Redwood Forest Foundation so it could purchase 50,000 acres of forest in Mendocino County, California.
We are told it was the first time a nonprofit had received 100 percent financing for such a deal from a single private source - a new leadership opportunity for us and a new way of doing business.
Some ask why we do business with companies that generate power from coal. The fact is, coal fuels 50 percent of the electricity consumed in the U.S. Our collective challenge is to evolve successfully from that level while avoiding severe disruptions to our economy and our energy security.
We know that at times we may not move as quickly as some would like. What I can commit to you, however, is the target we adopted to reduce indirect greenhouse gases in the bank's energy and utility portfolio by seven percent over 2004 levels by the end of next year. (For clarification, this covers our banking clients, and this is in addition to our target to reduce our own direct emissions.)
To achieve that goal, the bank has begun to give even more favorable consideration to sustainability in our underwriting criteria.
At Bank of America, we believe that the key to reducing carbon emissions and accelerating our economy's adaptation to a sustainable future is for the United States to implement a cap and trade system to control carbon emissions.
We favor a market based mechanism to set a value for carbon allowances. And we favor one clear, federal standard that would give investors the certainty they need to plan for the future.
We are not alone. Other forward thinking companies have issued such a call.
The concept of cap and trade is not new. It is working for our economy and environment today. In 1990, the Clean Air Act established such a system to curb sulfur dioxide, the primary cause of acid rain. The EPA capped sulfur dioxide at a target level and then allocated emissions allowances to power generators. Companies that reduce emissions can sell their allowances to others that exceed their cap. This has reduced SO2 emissions by more than five million tons below 1990s levels, at compliance costs 25 percent lower than the original EPA estimates.
Europe has a similar system in place to help EU countries reduce carbon emissions under the Kyoto Protocol. We and many others believe it is only a matter of time before we see that approach adopted here.
Clearly, there is disruptive change on the horizon for many industries. The winners will be those that adapt to it most successfully.
As our market strategists in our Investment Strategies Group have said in a note to our clients:
"We believe that the early stages of enacted regulation poses the toughest impediments for the global economy, during what we call the period of transition. Transitioning a firm's means of production can be a costly obstacle, and the process is most often employed at last resort..."
"It is our contention, however, that this transition will have to take place at some point and to some degree for all global producers. Companies that recognize early the eventuality of emissions regulation will likely be best prepared for the widespread change. Their readiness should translate into lessened exposure to rising input costs, greater operating efficiency and productivity and reflect an innovative management body that is skilled at adapting to an ever-changing business environment."
To prepare our business for the opportunity, Bank of America became the first financial services member of the Chicago Climate Exchange, the world's first voluntary carbon exchange where buyers and sellers can trade carbon offsets. Today, it has more than 250 pioneering members, some of whom are represented in this room.
Its European counterpart transacted 450 million tons of carbon contracts last year and almost that much in the first six months of this year. Here in U.S., the voluntary market is growing just as rapidly off a smaller base: less than 12 million metric tons in the first half of this year.
We have joined the exchange as a full, emissions-reducing member and as a liquidity provider. We plan to begin facilitating trades in the first quarter of 2008.
Because of our internal mandate that every business line pursue related opportunities, Bank of America will offer our credit card customers ways to support the development of these new markets: by earning carbon offset credits that can be invested in new sources of clean, renewable energy or by donating credit card reward points to organizations that help find solutions.
As our Chief Marketing Officer, Anne Finucane, reminds us, consumers are more interested in combating global warming than ever before. They want to contribute to the solution personally.
So, even if a small percentage of our 55 million customers participate, it would have a significant collective impact.
In the business I lead, Global Wealth & Investment Management, one area where we see opportunity to offer new investment products is in timber - which is one of the reasons I wanted to make this speech here in this region with its long heritage in timber and forestry.
Today, financial institutions own five percent of timber forests in the U.S., and that share is growing. As more landownership moves from paper companies to individuals and fiduciaries, the question becomes: How do you create incentives for these new owners to practice sustainable silviculture and be stewards of forests in a responsible way?
Bank of America is currently evaluating proprietary investment management solutions that incorporate forest conservation principles consistent with those defined by the Forest Stewardship Council. We are considering a range of angles, from reforestation, to wildlife management, responsible development and the support of carbon sequestration ecosystems.
At the end of September, we had $12 billion in hard assets under management for clients of our Specialty Asset Management group. This includes 2.2 million acres of ranches, farmland and timberland across the country, an area larger than Delaware and Rhode Island combined, which makes us one of the largest financial managers of such property in the country.
Pension funds, endowments and very wealthy clients are invested in timber and see it as a way to diversify their assets with favorable risk adjusted return. In the Pacific Northwest, for example, timberland investments generated a 15.3 percent average annual return from 1991 to 2006, according to the National Council of Real Estate Investment Fiduciaries.
When you exclude any gains from land speculation or real estate development, a property owner may be able to reap a 4-6 percent annualized rate of return over the long term from the biological growth of timber. Add another 2 percent a year or so from rising timber prices, and you approach a return that more investors might find attractive when offered with a sustainable component.
And if a cap and trade system were to pay timber owners for carbon sequestration, the extra margin could decide whether some holdings remain in sustainable timber production or whether they get sold off for development or for recreational property.
We are exploring our options of what we can do in the U.S., mindful that some of the biggest issues and opportunities for progress in this area loom overseas, in countries such as Indonesia, where rainforest depletion has enormous global environmental impacts.
So, to summarize: we see plenty of opportunities to improve our operations by reducing our green house gas emissions. And we see no shortage of new business opportunities in helping our banking clients do the same.
Realizing these opportunities will take time, but we are committed to realizing them.
As no less a figure on global warming than Al Gore said in the September issue of Euromoney magazine, "In some cases the commitment of larger banking institutions has run ahead of the expertise and knowledge that currently exists."
In reply, I would say that stretching the limits of what is possible is what leadership and innovation are all about.
This is a new leadership opportunity - and a responsibility - that we at Bank of America take seriously and are willing to pursue.
Thank you very much.
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