In January, the company posted solid Q4 2018 revenue growth – ahead of analysts’ expectations – driven by its consumer bank. Under the helm of chief executive Brian Moynihan, Bank of America has adopted a conservative approach, cutting costs and tightening risk controls: in fact, over the last decade, the company has cut $30bn in annualised costs2. Its peer JPMorgan Chase missed profit estimates in Q4 2018, citing a decline in its fixed-income trading revenue, while Citigroup also posted a fall in bond trading.
Figure 1. Bank of America has gained momentum in recent years
Source: Bloomberg as at February 2019.
A decade of ESG-focused engagement
We began engaging with Bank of America in April 2009 on a number of long-term ESG-related issues, ranging from risk management, governance and culture to remuneration. Initially, our ESG Dashboard flagged the company for its exposure to high-profile lawsuits, which related to the global financial crisis.
So far, our engagements with Bank of America, which span the last decade, have focused on:
- Board composition: In 2009, we urged the company to consider the board composition, particularly longstanding members and the need for refreshment.
- Pay: In 2010, we raised concerns about remuneration structures and the need to establish a policy that effectively aligns employees and the long-term shareholder interests.
- Corporate culture: In 2011, we pressed for greater alignment between risk-taking practices and the interests of long-term shareholders.
- Climate change: In 2016, we pressed for the company to increase its 2020 funding target for clean energy and other environmental activities. Last year, we asked the company to report against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
- Board independence: In 2017, we raised that we would like to see a good-quality candidate for its lead independent director. Separately, in 2018, we requested that the holding company discloses the names of the main bank subsidiary board’s members and how they convene.
Driving progress on long-term ESG issues
Over the last decade, Bank of America has acknowledged our concerns and, in many cases, it has made great strides in tackling ESG-related risks.
The bank has made a number of changes to its board. During our engagements, we have discussed these changes as well as the appointment of directors with relevant expertise, such as risk management, financial and regulatory experience. In addition, Bank of America has transformed its culture, adopting a zero-tolerance approach to unethical conduct issues and questionable lending practices. In fact, its 2015 Corporate Social Responsibility Report highlighted how the company’s purpose statement is driving its decision-making and strategy throughout the bank.
What’s more, we were pleased that the company embraced our discussion on the living wage for its own staff. It has acknowledged our concerns about board independence and climate change. The bank has been examining implementation of TCFD reporting, forming an internal working group comprising of regional leads and internal risk and ESG committee team members. We expect to see a white-paper response to the TCFD recommendations this year.
Our dialogue continues today – and we await further improvements on long-term sustainability issues that we have raised in recent years.