What Is Sustainable Finance and why Should Bank of America Investors Care?

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Bank of America (NYSE:BAC) stock has been largely sideways for the last 12 months. While there is little to talk about it in terms of price action, Bank of America seems to be making significant inroads into sustainable finance. Over the medium- to long-term, the sustainable finance theme is likely to create value for investors. This makes BAC stock attractive at a forward price-to-earnings ratio of 12.66. Let’s discuss sustainable finance and why it is likely to have a positive impact on value creation.

Bank of America recently announced that it deployed $250 billion in sustainable finance in 2021. Furthermore, the bank is accelerating its capital mobilization and plans to deploy $1.5 trillion in sustainable finance by 2030. Climate change and a more equitable future are some of the biggest challenges the world faces. The idea of sustainable finance is meant to address these challenges. Bank of America is playing a leading role by providing lending, capital raising, advisory and investment services related to the green energy sector.

From the perspective of companies operating in the low-carbon business, the advantage is easy access to capital. For Bank of America, the lending will open a window for revenue upside through lending and advisory activities. Additionally, the bank had a renewable energy tax equity portfolio of $12 billion as of 2021. Given the commitment to sustainable finance investing, the portfolio is likely to swell in the coming years.


Talking about the market size, a consortium of 450 financial companies have committed assets of over $130 trillion towards net-zero ambitions. Therefore, the $1.5 trillion investment target for Bank of America by 2030 is just the tip of the iceberg. The global investment commitment also underscores the point that sustainable finance is here to stay. JPMorgan Chase (NYSE:JPM) has also committed $2.5 trillion towards sustainable finance over the next decade.

As of March 2022, companies and governments globally raised $94 billion in green bonds. Bank of America was the second biggest underwriter of bonds behind BNP Paribas SA (OTCMKTS:BNPQF). As demand for financing low-carbon projects accelerates, Bank of America seems to be positioned to benefit.

Therefore, I am bullish on BAC stock as the bank makes significant progress in sustainable finance. Given the current valuation and a dividend yield of 2.05%, BAC stock is worth holding in a portfolio.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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