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Bank of America: This account is overdrawn

By William D Alessandro on October 11, 2012 at 3:00pm.

Content:

“Local impact.  Global momentum” is a record-contending 125 pages.  Sentence by sentence and word for word,  this is one of the most disappointing sustainability reports ever published.  Allowing for a few exceptions, more can be learned by reading one of the 60,000 media articles referring to the Bank of America  (BofA) in calendar year 2011.

The bank’s 2010 edition has a similarly salubrious title “Opportunity in Motion”.  It is 30% shorter and  at least that much better.  

Here is a smattering of what is not mentioned in the 2011 social responsibility report from the second largest bank in the US:

• Management’s intention to slash 30,000 jobs (or is that 36,000?);

• Any reference to what would, in 2012, be the largest consumer financial protection settlement in US history.  (We’re talking about abusive mortgage practices that cost five US banks a combined legal penalty of $25 billion);

• How BofA is dealing with dangerous security attacks by hackers;

•  What is being done about credit reporting mistakes that hurt customers and erode the bank’s reputation.

• A US Department of Justice claim of racial discrimination related to mortgages issued by a company BofA bought;

• The  community impacts of declining revenue streams and corporate downsizing;

• Legal claims by shareholders against the bank alleging false and misleading statements related to the acquisition of Merrill Lynch.  (In 2012 BofA would agree to settle those claims for $2.43 billion);

• A still pending, civil fraud suit in New York related to mortgage loan practices; and

• A lawsuit by American International Group asking for billions of dollars to compensate for damages alleging cheating on the sale of mortgage-back securities.

BofA does say that litigation-related matters and regulatory problems can be found in their 10-K filing to the US Securities and Exchange Commission (SEC).

Is that so? 

After you find the 2011 10-K, clock how many hours — or days — it takes to fit the SEC filing into any sensible context with BofA’s  sustainability report. 

The reporting team state well enough what corporate social responsibility means at BofA.  For the purposes of the corporate social responsibility activities, BofA’s standard of materiality is as follows:  “Issues that can have a fundamental impact on the reputation or viability of the enterprise and/or impact on stakeholders’ decisions as to whether to do business with us.”

For the first time in this 2011 report, five material issues are identified.  They can be boiled down to two words each:  1) overall strength; 2) customer interaction; 3) mortgage issues; 4) community contributions; and 5) environmental impacts.

The report alludes to various codes and core values, available on the corporation’s web site, that management has in place to deal with sustainability challenges.  No specific links or directions are given to locate the web-based material. 

In chapter six BofA spells out how the company is working to reduce the bank’s carbon emissions and to finance the transition to a lower carbon future.  (Whether that is low enough is not addressed.)   The presentation is thorough.  For instance, Scope  1 and 2 emissions are broken out for 17 countries that account for 99.6% of bank’s greenhouse gases. 

An interesting, full-page  chart shows the separate contributions by the bank’s business lines towards environmental initiatives that address global climate change.  This graphic would be far less confusing if the categories on it, such as commercial real estate, or leasing, or public finance, were defined in footnotes or explained fully in accompanying text.

An important chapter twelve explains how materiality is determined and what the process is for stakeholder engagement. 

Nearly all the other information in the report is of the “take it or leave it” variety.

Communication:

Without question BofA’s report is well-written.  The style suits the subject.   Nothing original is here, but the text is neither dull nor muddied by jargon.

The report contains about 29 pages of photographs.  That is more than 20% of the report.  Nine pages are devoted to the index of Global Reporting Initiative (GRI) disclosures (more about them below).   A list of awards and honours takes out three pages. 

There is no index of charts, graphs, and tables.  Very few of the graphics present the type of information that might be regarded as essential.  The graphic contents fill only about nine pages combined.  However, six and one-half pages more of graphs and charts are presented in the environmental section to report on climate change matters. 

The dominant feature of the report is its size.  The report is long, mainly because generally speaking only one topic, or two, turns up on each page. 

A typical example is “Supporting the Housing Market”.  The first page of the section includes a large photo and has just 94 words telling where BofA is focusing its efforts.  The next page is devoted to mortgage production using just 190 words plus two graphs; the next page has 186 words, a large photo, and a graph covering home retention; and the next page tackles two subjects — customer assistance and outreach — with 292 words and two graphs.  

The pattern repeats itself from cover to cover.  The technique of offering one idea per page may put readers at ease.  But that has to weigh against navigational difficulties.  Finding where anything is, or returning to review what has been said on a topic, is a chore.

Credibility:

Bank of America has a chequered history of commitment to corporate social responsibility.  Don’t bother looking for any black moves by BofA in the 2011 sustainability report.  Every play is made by the white side.

The institution was the first major financial services company in the US to endorse the code of behaviour promulgated by the Coalition for Environmentally Responsible Economies (Ceres).  The bank signed the Ceres Principles in December 1996.  The CEO gave the plenary speech at the Ceres annual conference in 2001.  Ken Lewis said then that the company was “very much attuned to issues of social responsibility.”   It took until January 2007 for the bank to publish a corporate responsibility report.

In 2004 the bank got a leg up on rivals by committing to use due diligence not to finance commercial operations that extract resources from large tracts of untouched, intact forests.  But in the same year BofA paid $375 million, a record at the time, to settle charges about engaging in marketing timing and late trading for special customers.

The beat goes on. 

New York operations are headquartered in a fabulous, award-winning tower in the heart of the city near Grand Central Station and Times Square.  The new skyscraper features state-of-the-art, environmentally friendly technology.   In 2010, the year after the building was finished, BofA was accused of defrauding schools, hospitals, and state and local governments.  The charges related to the investment of proceeds from the sale of bonds.   Eventually, BofA settled, paying $137.7 million to the alleged victims to close the case.

The bank’s GRI disclosure index lists each indicator as fully, partially, or not reported.  But even a cursory review raises doubts about the accuracy of the designations. 

Try starting at the very beginning: GRI disclosure 1.1.  “Statement from the most senior decision-maker of the organisation”.  Go to page 20 of the GRI G.31 sustainability reporting guidelines [https://www.globalreporting.org/resourcelibrary/G3.1-Guidelines-Incl-Technical-Protocol.pdf ].  Read the standard of disclosure for 1.1.  Then read pages 3 and 4 of BofA’s sustainability report, purporting to “fully” report against this item.  The gap between what is required by the GRI standard and what the CEO and the global strategy and marketing officer say in their short remarks can be measured in light years.   Other discrepancies in the GRI index can be similarly questioned.

Nevertheless, the 2011 sustainability report contains a statement of compliance from GRI and also from an independent assurance service, Bureau Veritas North America.  They find nothing to indicate any deviances in the environmental data, in the consistency of certain data on GRI indicators with other BofA public reports and internal policies, and in the data submitted as meeting the principles of reporting in the GRI guidelines.

Recommendations:

1.  Unless you want to reverse the direction you seem to be headed in,  save the time, spare the effort, and preserve (a miniscule fraction of) your shareholders’ money.  Trim the lard and produce a pro forma  report of around 36 pages.
 
2. Declare concrete goals in terms of key performance indicators, measure progress or lack thereof, and report the results directly and clearly.  

3.  If you insist on filling nearly a quarter of the report with photographs, try to choose a few more that are worth a thousand words, rather than, as in this report, those that just mindlessly take up space.  

William D’Alessandro is president of Victor House News Co., an independent agency reporting on law and the environment for trade publications and executive newsletters.  He also edits Crosslands Bulletin http://www.crosslandsbulletin.com covering strategic corporate environmental management and sustainability issues.