Andrew Karp

The bank’s head of ESG advisory and financing solutions, Andrew Karp, explains to Marie Kemplay why he expects no let-up in client demand for support in navigating the increasingly complex ESG landscape.

As the debate and discussion at COP27 in Sharm el-Sheikh, Egypt has laid bare, there are few easy solutions when it comes to transitioning to a more sustainable global economy. And while much of the focus of recent weeks has been on what governments are doing, these thorny issues are just as relevant for corporates the world over.

This is where global banks such as Bank of America (BofA) believe they have a key role to play, which goes beyond supporting sustainable capital raising and into advising companies on how to navigate the increasingly complex environmental, social and governance (ESG) landscape they must operate within.

Natural evolution

BofA has consistently been a leading bookrunner on sustainable issuances — a trend that has continued this year, with it topping the league table for green bond issuances and sustainable syndicated loans for the first nine months of 2022, according to Refinitiv. So, a broader ESG offering was a natural evolution for the bank, suggests Andrew Karp, the bank’s head of ESG advisory and financing solutions, within the global corporate and investment banking line of the business.

He adds that sustainability guides how BofA conducts its business and operations, as well as how it pursues responsible growth across core lending and investments, equity and debt capital markets activities, advisory services and engagement with staff.

Career history: Andrew Karp 

2021 Head of ESG advisory and financing solutions, global corporate and investment banking, Bank of America 

2017 Head of global investment-grade capital markets, Bank of America 

2016 Co-head of global investment-grade capital markets, Bank of America 

2014 Co-head of Americas investment-grade capital markets, Bank of America 

2010 Head of US syndicate investment-grade capital markets, Bank of America 

2005 Managing director, investment-grade capital markets, Bank of America 

1996 Director, Credit Suisse

In line with the company’s broader strategy, the global corporate and investment banking line of business launched its ESG advisory and financing solutions team in December 2021, bringing together existing capital markets capabilities in this area and adding additional resources to support its ambition of being the go-to bank for ESG issues in the round. 

Mr Karp’s team works in partnership with the bank’s global sustainable finance group, which works across BofA’s business lines. Among other areas of work, the global sustainable finance team oversees the implementation of firm-wide capital development and mobilisation goals, such as the firm’s commitment to deploy $1.5tn in sustainable financing by 2030, and delivers thought leadership across international alliances and taskforces.

Speaking about the formation of the ESG advisory and financing solutions team, Mr Karp says: “When we began the team, we built on the foundation of our prior ESG capital markets efforts — we’ve been engaged in underwriting transactions in the green bonds and broader ESG-themed markets for many years.” There was also a recognition that within the global corporate and investment bank that ESG financing would continue to broaden into other areas, such as leveraged finance and equity capital markets, and “that meant adding more skilled individuals to the team who could provide expertise in structuring in other areas”.

ESG moves beyond bonds

In the early days of green and other labelled bonds, these instruments were restricted to the investment-grade universe of companies, as investors had to learn how to quantify and assess new types of risk. Several years on and ESG factors have become a standard and integrated part of how investors evaluate companies and investments, “that has opened up a much broader universe, outside of just the most highly-rated names”.

This is also becoming true of other markets too, even where there are no specific ESG-labelled products. “We want to support our clients with ESG considerations as they execute transactions in the equity markets and engage with shareholders, and potential shareholders, on these topics,” says Mr Karp. It is also becoming a part of the dialogue around merger and acquisition deals, he says, with investors looking at the emissions profile of a business and what that means in terms of any net-zero commitments they have signed up to.

The other crucial aspect of the team’s formation was bringing together a team of experts that could “take a holistic approach, outside of a specific financing or transaction”, says Mr Karp — for instance, in areas such as structuring investor relations strategy, providing guidance on ESG ratings, peer benchmarking and identifying industry best practices. He adds: “We found there was a significant amount of client demand, including at the most senior levels, to have a better understanding of investor sentiment and broader market thinking around these issues, and therefore what the implications are for their organisation from a financial and broader strategic perspective.”

He says enabling staff to engage with clients outside of transactions has been highly impactful for deepening client relationships and provides them with real “value-added content” in a subject area that is strategically very important to them.

Growing momentum

The momentum has continued this year with the group making several senior hires in Europe, the Middle East and Africa (EMEA) and the Americas, in an effort to continue boosting its numbers and build a significant global team. For example, Alexandra Basirov, formally of BNP Paribas, joined in September as managing director and head of EMEA global corporate and investment banking ESG advisory and financing solutions. Emily Laochua also joined as managing director and head of Americas ESG advisory from Credit Suisse Securities, while Suley Saleem, formerly of Calvert Research and Management (a subsidiary of Morgan Stanley), now leads Americas ESG equity capital markets. Most recently, Andrew Stinson became the new head of Americas ESG funding solutions.

Large banks have increasingly found themselves in the firing line by critics at both ends of the spectrum for simultaneously not doing enough to tackle issues such as climate change and straying outside of their core financing remit by engaging in these issues.

Mr Karp is clear that for BofA, sustainable finance is “a core focus”, with an obvious commitment coming from CEO level down. It also makes strong business sense as it is an area where there is evident and growing client demand.

He draws a distinction between client needs in Europe and North America, although the demand is strong in both geographies, he says. “The regulatory environment in Europe is such that clients are incredibly focused on this area; they are required to be. But there has also been a natural propensity towards these issues for a number of years.”

However, Mr Karp adds that in the US ,“despite there not being the same regulatory pressure yet, many clients are increasingly focused on these issues. The markets are focused on it, and it is starting to impact how businesses think about their strategic activities, their cost of capital and valuations.”

Broad motivations

He also observes that for many companies, the motivation for engaging on these issues stretches far wider than the purely financial considerations. “The motivations can be very broad. Clearly, depending on the sector, issues around climate and decarbonisation will more pressing, or a more direct concern, but even so, there are plenty of companies from across the sectors that want to do the best they can on these issues — whether that is motivated by what their stakeholders want or from a more purpose-driven point of view.”

For many companies, engaging on ESG topics and building a purpose-driven corporate culture has become an important consideration around recruitment and retention of talent, particularly for younger workers. Mr Karp points to research from BofA Global Research that highlights how culture can have a significant impact on employee levels of job satisfaction and, crucially, on a company’s investment value. The research highlights how companies with a high ‘culture and values’ rating according to data from workplace ratings company, Glassdoor, can outperform poorly ranked peers within the S&P 500 by as much as 30%.

Improving data

Although investor engagement and market sophistication in measuring the ESG performance of companies continues to grow, there remains a significant gap in data quality and making direct comparisons between companies on metrics such as emissions remains difficult. Mr Karp is hopeful that there will continue to be improvements and a drive towards standardised reporting, noting the establishment of the International Sustainability Standards Board and its baseline sustainability-related disclosure standards. “I think it will continue to hinder capital flows until there are more consistent standards. And certainly, we believe there should be consistent global standards for disclosure, that all participants, regardless of region, adhere to. Clearly that would be the preferred direction,” he says.

transition financing is something the world really needs if we’re going to achieve net-zero targets

Mr Karp, however, is mindful of regulators getting the balance right on “ensuring companies are living up to the claims they make”, but not creating parameters that are too prescriptive or create a disincentive to direct capital to where it is needed.

He provides the example of transition financing, i.e. financing to support high-carbon emitting companies to transition to greener operations. “It’s not just about directing capital to already green companies — transition financing is something the world really needs if we’re going to achieve net-zero targets.” Mr Karp’s concern is if regulatory disclosure requirements are not formulated thoughtfully, “particularly in an environment where investors are becoming increasingly sensitive to greenwashing”, transition finance could find itself unfairly labelled as something negative.

“Something that we’re very supportive of is the development of a proper transition-financing framework, so that investors can have the confidence that although they may not be financing a ‘green’ company, they are financing a ‘green’ activity. That is something that we think is missing from the markets at the moment,” he says.

Long-term shift to renewables

Mr Karp believes the global energy security concerns brought to the fore by Russia’s invasion of Ukraine and associated events makes the case for supporting transition financing even stronger. “This is not an area of investment we should be inhibiting,” he explains.

Although, in the short term, energy security issues are creating immediate pressure for increased reliance on fossil fuels, Mr Karp believes the longer-term outcome will be more positive. “This is supportive of the evolution towards renewable energy. If there is a need to establish a domestic energy supply, but a country does not have natural resources within its own borders, then clearly wind and solar are going to be part of the solution.”

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