Bank of America recently announced the issuance of a US$2bn Equality Progress Sustainability Bond designed to advance racial equality, economic opportunity and environmental sustainability. The bank says this is the first offering of its kind in the financial services industry.

The transaction also represents the first sustainability bond issued by a US bank holding company where the social portion of the use of proceeds will be dedicated to financial empowerment of Black and Hispanic-Latino communities.

This is Bank of America’s eighth environmental, social and governance (ESG)-themed corporate bond, bringing the firm’s aggregate total of issuance to US$9.85bn.

“Our focus on sustainable finance is one of the ways we drive responsible growth," said Anne Finucane, vice chairman at Bank of America, who leads the company’s ESG, sustainable finance, capital deployment and public policy efforts. "By addressing these critically important issues through ESG-themed securities, we are offering a way for fixed income investors to be part of social and environmental change, and drive solutions through the debt capital markets. Our communities and the environment are inextricably linked, and Bank of America cares deeply about both and continues to explore innovative ways to enable investors to use their investments to help address these societal challenges.”

Bond features

The five-year bond, which is callable in four-years, will pay interest semi-annually at a fixed rate of 0.981% for the first four-years, and quarterly at a floating rate thereafter. BofA Securities was the sole bookrunner on the deal and three minority-owned broker dealers served as joint lead managers - Loop Capital Markets, Ramirez & Co., Inc. and Siebert Williams Shank.

An amount equal to the net proceeds from the bond offering will be allocated to social and environmental purposes, helping to advance several of the United Nations (UN) Sustainable Development Goals (SDGs). The types of social projects benefiting from this offering - and any bond offering of other issuers with similar social purposes - have the potential to increase lending and investment in minority communities and businesses.

Financing and investment for social purposes that seek to help reduce inequalities for Black and Hispanic-Latino borrowers and communities in the US including:

• Supply chain finance loans to be offered directly to minority-owned business enterprises.
• Deposits and equity investments in Black and Hispanic-Latino Minority Depository Institutions that are also Community Development Financial Institutions.
• Equity investments in Black and Hispanic-Latino owned or operated businesses and funds that invest in Black and Hispanic-Latino owned businesses. 
• Mortgage lending, construction loans and other financing and investments relating to single or multi-family housing or affordable housing projects.
• Financing for medical professionals to create or expand medical, veterinary and dental practices.

Environmental projects include financing, leasing and investments that support the transition to a low-carbon economy, focusing specifically on renewable energy and clean transportation.

“Bank of America is proud to build upon its long-standing commitment to our communities through ESG and sustainable finance initiatives," said Tom Montag, chief operating officer at Bank of America. "This innovative offering aims to support progress toward racial equality and environmental sustainability by leveraging the company’s extensive capabilities and committed local engagement,” “We believe this offering will inspire other issuers and mobilize additional capital to address these critical issues.”

ESG reporting scrutiny

Within one year of the issuance of the notes, Bank of America will publish a report on a designated website, which will be updated at least annually as long as the notes remain outstanding, regarding the allocation to eligible social and green assets.

With an increasing scrutiny on the debt and investment instruments that are being classified with an ESG tag, Fitch Solutions recently launched the Fitch Ratings ESG Relevance Scores Data solution. The tool is designed to allow market participants to transparently and easily analyse credit risk as it relates to environmental, social and governance factors for Fitch-rated entities.

Fitch Ratings ESG Relevance Scores Data provides ESG relevance scores for the majority of Fitch Ratings’ publicly rated entities and transactions across corporates, banks, non-bank financial institutions, insurance, public finance (international and US municipal), global infrastructure and structured finance (ABS, CMBS and RMBS).

Previously, the latest ESG Relevance Scores were available only individually in rating action commentaries and as PDFs. The ESG Relevance Scores will now be available as a data feed which allows users to access the data quicker and more conveniently. There are currently over 140,000 data points which cover almost 10,000 issuers and transactions within the new service. The feed is available for purchase through Fitch Solutions.

"There is a growing requirement on asset owners and managers to incorporate ESG factors into credit risk assessments, but up until now, fixed income ESG data has been disparate, difficult to obtain and hard to work with," said Joo-Yung Lee, managing director of Credit Intelligence for US financial institutions and global banks for Fitch Solutions. "Fitch Ratings ESG Relevance Scores Data is the first product of its kind to close this gap. The data provides a value neutral view on how different ESG factors specifically impact credit."