Can Carbon Credit Deal Help Bank of America's Tarnished Image?
Sunday, November 6, 2011
The last few months have been unfortunate, to say the least, for Bank of America Merrill Lynch. The U.S. financial giant has come under fire on more than one front -- from lawsuits, to a downgrade in ratings, to falling stocks and dissatisfied customers. Amid corporate image woes, the company announced this week a groundbreaking multi-million dollar carbon credit deal with California-based TerraPass Inc.
It seems like Bank of America has every reason to look for ways to mend its damaged name and to reposition itself on the global commodities market. The announcement of the carbon credit agreement, then, should not come as a surprise. Through the bold and innovative move, one of the world's largest financial institutions is vying to become a leader in carbon credit trade in California after the state implements its compliance carbon trading scheme in 2012.
Under the carbon credit agreement, Bank of America Merrill Lynch Global Commodities Group has an option to purchase and bring to market several million tons of California carbon offsets from TerraPass Inc. through 2020, which will be generated from a pool of agricultural methane projects located throughout the U.S. All of the company's agricultural methane projects follow regulations, which are compliant with California's Global Warming Solution's Act and its offset protocol.
Abyd Karmali, global head of Carbon Markets in the Global Commodities Group at Bank of America Merrill Lynch, said of the deal: "By acting as a first mover in California, we are positioning ourselves as the offset provider of choice for companies that will need to become compliant under these new regulations."
One has to wonder, is Bank of America's new green deal indicative of the company's genuine concern for the environment? Or it shows the company's progressive business thinking and investment savvy for entering a promising, yet untapped, niche market? Or maybe it is just a smart PR move?
Companies, who have tried to differentiate themselves and gain a competitive edge, are no strangers to using environmental sustainability, carbon offsetting and climate change as part of their marketing campaigns. With consumers and investors growing more and more eco-conscious, it seems like a smart business move to adopt a more sustainable business model. In this sense, Bank of America's agreement seems logical. And it can, indeed, help the company reinvent itself and achieve a stable position in an emerging niche market. This, in turn, will hopefully help the brand regain customer and shareholder trust.
Sustainable and ethical investments, such as entering emerging carbon credit markets, can benefit corporations in a few ways:
1. It highlights the business' commitment to sustainability and social responsibility, making it more appealing to current and prospective shareholders. As in the case of Bank of America, teaming up with TerraPass Inc. is a clear message that the company is adopting an innovative business model, which places current environmental issues at a higher priority when compared to traditional business models. In a time when "green" is in, sustainable practices certainly receive attention, and the right kind at that.
2. A company can gain a competitive advantage by differentiating itself, especially in client-oriented markets. Financial institutions today are facing a stiff competition. As customers are becoming more and more aware of their impact on the environment, by offering them the option to participate in the green economy, Bank of America is clearly trying to regain client attention, confidence and trust. For the same reason, Google decided to make publicly available its carbon footprint. The search engine company also stressed its commitment to alternative energy as a way of maintaining its carbon neutrality. And with the launch of Google+ a few months ago, a platform aimed at earning a chunk of the winning and highly competitive social networking market, Google is making all the right business moves to gain customers. Needless to say, clients will take notice of its green efforts.
3. It shows innovation and leadership. As Karmali himself said, it's a way of placing the company in a favourable pro-active position while others are still weighing in their options. Financial experts expect that the California's Global Warming Solution's Act will lead the way to the world's second largest carbon trading market after the European Union Emissions Trading Scheme. Bank of America is ready to take advantage of the untapped pot of gold. Its corporate leadership is showcasing not only creativity when it comes to investing, but also farsightedness -- a quality much-appreciated in the financial world.
As with any emerging market, the California compliance carbon credit market will take some time to generate momentum and return monetary rewards. Until then, Bank of America and other parties, which are optimistically placing their bets on carbon's promising future in the U.S., can enjoy the benefits of good press and public approval - both quite effective in diverting attention from corporate crises.
