Bank of America Corp. sparked a stir in January—and a little envy—with just a few lines of disclosure in its fourth-quarter earnings report.
The lender revealed it had slashed its 2020 corporate tax rate to 5.8% from what would have been 21%, thanks to finance work involving environmental, social and governance projects. That didn’t go unnoticed by Bank of America’s competitors.
Executives at one large regional bank saw it, and talked to Bryen Alperin, director of renewable energy for tax specialist Foss & Co.
“Wow, look at that,” the company told him, he said. “Maybe we should be doing this.”
In fact, pretty much everyone is. This month, JPMorgan Chase & Co. announced a pledge to finance and facilitate at least $2.5 trillion of sustainable and climate-friendly deals over the next decade, Bank of America set a target of $1.5 trillion, and Citigroup Inc. and Morgan Stanley said they would be mobilizing $1 trillion each. Meet Wall Street’s new trillion-dollar ESG club. The banks created it, analysts say, to please regulators, impress shareholders and activists, do some good—and cut their tax bills.
“The writing’s on the wall, things are going to change and the banks need to be out in front of that,” said Christopher Wolfe, who analyzes banks for Fitch Ratings Inc.
Wolfe wasn’t just referring to the shift in attitudes about energy and the climate, but also prospects for a tax overhaul the Biden administration is proposing that could raise levies on big corporations to 28% from 21%. When Donald Trump slashed taxes in 2017, he handed a $32 billion windfall to the biggest U.S. banks, which will look for ways to cope if tax rates now reverse course. Biden's infrastructure plan calls for an expansion of tax credits for low-income housing, energy-efficient buildings and renewable energy, and that could boost the finance industry's options.
Bank of America’s annual report cited tax credits offered by U.S. law to investors in projects including affordable housing and renewable energy, which “generally involve substantial pretax losses.” They saved the bank $3 billion on its tax bill last year, it said.
“ESG investing isn’t some kind of hippie-dippy movement,” Alperin from Foss & Co. said. “It’s good for business.”
The trillion-dollar announcements from the banks aren’t brand new or even strictly green. Bank of America's new pledge, which includes $1 trillion in an environmental-business initiative, boosted a $300 billion commitment it made in 2019. As one example of its work, the bank cited a $1 billion bond “to support those on the front lines of the coronavirus health crisis.”
JPMorgan, which had already committed to $200 billion of sustainable financing for 2020, says its new goal includes $1 trillion for green initiatives, plus deals that will boost “quality of life in developing countries” and “advance economic inclusion in developed markets.”