At SXSW, Bank of America's executive vice chair discusses financing for energy transition, decarbonization, and the importance of working with stakeholders.

Timestamps:

0:29 – Mobilizing the financing for the energy transition

2:53 – On small and mid-cap companies getting access to capital

4:14 – How different stakeholders in this environment should be working together 

5:47 – Getting investor buy-in on the energy transition

Julian Mylchreest 

The money is there, but it's not always in the right place. And I think certainly for us as a bank it's like, how do you actually mobilize it or move it and make sure that it gets to the right place. So, I think it’s there, but you’ve got to actually mobilize it. 

Joanne Salih 

I'm Joanne Salih, a partner in Oliver Wyman's Energy and Natural Resources Practice and I'm joined here today at South by Southwest by Julian Mylchreest, who is Executive Vice Chairman at Bank of America.

So today we are discussing the $20 trillion challenge for the energy transition. Julian, as we know, that's quite a chunk of change. Do you believe that there is the financing available to make the transition happen? 

Julian 

I think the financing is there, it's about mobilizing it, right? I think we've been there before. If you look back when the US was building the railroads, you look at the Big Tech boom, that percentage of GDP has mobilized behind the big critical trends and thematics before. 

The money is there, but it's not always in the right place. And I think certainly for us as a bank, it's like how do you actually mobilize it or move it and make sure that it gets to the right place. So I think it's there, but you've got to actually mobilize it. 

Joanne 

So, we often reference this wall of capital effectively that you're talking about. So how do we go about ensuring that this financing is deployed at pace? Is it an issue of financing execution or is it the opportunities in the pipeline, or something else?

Julian 

Well, it's finding the right project because I think the bar for a bank is always, if you're looking at the project finance side of things, does the project work? 

So I think that's why you're seeing in developed markets with developed technology, capital’s flowing. If you look at the infrastructure side of things, again, capital's flowing. Where there's more to be done is in emerging markets and new technology. And I think that's where the bottlenecks are and taking things into that growth capital phase. 

Once you've been through that first-of-a-kind, second-of-a-kind piece and I think you and I have talked about this before, but I think that the sort of project finance versus corporate finance, I mean for us as a bank, it's a lot easier to mobilize capital behind a big corporate and then they spend it because they think it's the right thing to be spending their equity capital on, and we have provided them the debt capital and we'll just be much slower, I think, in hitting our targets with the energy transition if everything's done on a project finance basis only. 

So that's one of my big asks of all our clients, whether it's the energy companies, the utility companies, and frankly also with the boom in AI and data centers, the tech companies, big balance sheets, we could get behind those at scale much faster than actually doing a whole series of project financing. 

So look, we'll probably do both. I'd like to be doing both, rather than always having the question, ‘does the project work?’ because actually people can take a little bit more risk I think, and say, “Look, I can put the balance sheet of a big bank like ourselves behind me”. 

Joanne 

So that's really interesting and you are right Julian, we have spoken about this in the past. When you do have big balance sheets and you're looking at the corporate as a whole, it does make financing that bit easier and it's part of the whole. What do you think that means for smaller, mid-cap companies who don't quite have the same balance sheets that do struggle fundamentally with the same challenges?

Julian 

Yeah, look, that I think requires them to think much more on equity finance and putting the right structures together, right partners. And I think again, if you look in the developed technology, developed markets kind of space, I think they're finding access to that capital. I actually think also in the venture capital space there's quite a lot of capital flowing. 

It's taking stuff in those less developed technologies, from the venture capital stage into the growth stage and how you actually scale them. That's where I think the smaller companies are finding it hard, which is one of the things I think when I look at some of those smaller companies, those ones that have actually brought in maybe a corporate venture firm, I think are probably going to find it easier to keep scaling because they've got effectively a venture arm of the big chunk of capital with them than just the purely financial. 

So the other place I think is maybe you'll see some more patient capital from private offices and so on start to come in as well. We're talking to a lot more of those private offices who are saying “look, we want to have an impact” and therefore maybe they'll be ready to actually be part of that bridging as well. 

Joanne 

The role that banks play, the role that private investors play. Tell me a little bit more about that. How different stakeholders in this environment should be working together? 

Julian 

Well, I think again, back to your question around the $20 trillion and how do we get there, it's going to take everybody. So I think what matters is that governments are not saying “we're going to do this, but not that” – I'd rather you had a framework where it's everything  lots of ‘ands’ rather than ‘either / or’ from a government stakeholder standpoint. I think from a broader financial standpoint, again, you need everybody in the room. The oil and gas companies need to transition, but actually we can put a lot of capital behind those oil and gas companies if they're serious about transitioning. 

The other thing I think, look, it's slightly a challenge back to investors I would put out there as well, which is look, one of the reasons to my earlier thing of getting more corporate finance deployed, that's not being deployed because people are prioritizing a return to shareholders.

Well, again, if we all believe – as we do at Bank of America – that this is a secular growth story that we all want to get behind, then actually that growth story should mean that shareholders should want that cash to be deployed into that growth story from the balance sheet, big capital, corporate finance into big projects as opposed to necessarily going out to equity investors just as dividend and cash returns. So I think from everybody's standpoint, it's just getting alignment that this is an absolute priority and then if everyone's in the room hopefully we can get to the right place on a decent timetable.

Joanne 

As we've spoken about many times, for the transition to actually work, much like any other great change in a capital market, it has to be profitable and that needs to be a story which can be sold to investors, whether that's value investors or growth investors. What do you think needs to be done there? Because from my perspective, there's still a gap first in proving value and secondly in the understanding  of the investor base on what's required. 

Julian 

Well, look, I think there've been particular challenges just given what we've been through the last few years, which have impacted the supply chain – and costs. So that is an issue which we're just going to have to work through.

I think beyond that, you've got different approaches being taken by different governments as well. So, from incentivizing capital  in the United States to more of the market-driven – I'd say more market-and-stick approach – in terms of what's happening in the EU. The reality really to make things happen, you've got to deploy both. 

And I also think from a government standpoint, wherever you are, if we're in a climate crisis and we drive things,  what more can we do and how should we be doing that to really make things happen? Something like the Inflation Reduction Act here in the US has been fantastic, but again, you look at it, it's been a big initiative but if you look at it relative to say what was done when we were in the middle of COVID, the COVID Act deployed more capital than is probably going to be deployed through the IRA over the next period of time. 

So again, if we're in that kind of climate crisis, a lot of it is saying, “look, how do we drive change through pulling all the levers at once?” And that goes to market incentives, CapEx incentives, clarity and framework from governments, from my earlier point – not having ‘either / ors’, but just people having contributed anything they're doing that contributes to hitting the goals of meeting that energy demand in a different way. That we're aligned is going to be critical. 

Joanne 

Well, it’s been great to speak with you and I know we’ll have far more discussions at South by Southwest on this topic. Thank you Julian. 

This transcript has been edited for clarity 

At SXSW, Bank of America's executive vice chair discusses financing for energy transition, decarbonization, and the importance of working with stakeholders.

Timestamps:

0:29 – Mobilizing the financing for the energy transition

2:53 – On small and mid-cap companies getting access to capital

4:14 – How different stakeholders in this environment should be working together 

5:47 – Getting investor buy-in on the energy transition

Julian Mylchreest 

The money is there, but it's not always in the right place. And I think certainly for us as a bank it's like, how do you actually mobilize it or move it and make sure that it gets to the right place. So, I think it’s there, but you’ve got to actually mobilize it. 

Joanne Salih 

I'm Joanne Salih, a partner in Oliver Wyman's Energy and Natural Resources Practice and I'm joined here today at South by Southwest by Julian Mylchreest, who is Executive Vice Chairman at Bank of America.

So today we are discussing the $20 trillion challenge for the energy transition. Julian, as we know, that's quite a chunk of change. Do you believe that there is the financing available to make the transition happen? 

Julian 

I think the financing is there, it's about mobilizing it, right? I think we've been there before. If you look back when the US was building the railroads, you look at the Big Tech boom, that percentage of GDP has mobilized behind the big critical trends and thematics before. 

The money is there, but it's not always in the right place. And I think certainly for us as a bank, it's like how do you actually mobilize it or move it and make sure that it gets to the right place. So I think it's there, but you've got to actually mobilize it. 

Joanne 

So, we often reference this wall of capital effectively that you're talking about. So how do we go about ensuring that this financing is deployed at pace? Is it an issue of financing execution or is it the opportunities in the pipeline, or something else?

Julian 

Well, it's finding the right project because I think the bar for a bank is always, if you're looking at the project finance side of things, does the project work? 

So I think that's why you're seeing in developed markets with developed technology, capital’s flowing. If you look at the infrastructure side of things, again, capital's flowing. Where there's more to be done is in emerging markets and new technology. And I think that's where the bottlenecks are and taking things into that growth capital phase. 

Once you've been through that first-of-a-kind, second-of-a-kind piece and I think you and I have talked about this before, but I think that the sort of project finance versus corporate finance, I mean for us as a bank, it's a lot easier to mobilize capital behind a big corporate and then they spend it because they think it's the right thing to be spending their equity capital on, and we have provided them the debt capital and we'll just be much slower, I think, in hitting our targets with the energy transition if everything's done on a project finance basis only. 

So that's one of my big asks of all our clients, whether it's the energy companies, the utility companies, and frankly also with the boom in AI and data centers, the tech companies, big balance sheets, we could get behind those at scale much faster than actually doing a whole series of project financing. 

So look, we'll probably do both. I'd like to be doing both, rather than always having the question, ‘does the project work?’ because actually people can take a little bit more risk I think, and say, “Look, I can put the balance sheet of a big bank like ourselves behind me”. 

Joanne 

So that's really interesting and you are right Julian, we have spoken about this in the past. When you do have big balance sheets and you're looking at the corporate as a whole, it does make financing that bit easier and it's part of the whole. What do you think that means for smaller, mid-cap companies who don't quite have the same balance sheets that do struggle fundamentally with the same challenges?

Julian 

Yeah, look, that I think requires them to think much more on equity finance and putting the right structures together, right partners. And I think again, if you look in the developed technology, developed markets kind of space, I think they're finding access to that capital. I actually think also in the venture capital space there's quite a lot of capital flowing. 

It's taking stuff in those less developed technologies, from the venture capital stage into the growth stage and how you actually scale them. That's where I think the smaller companies are finding it hard, which is one of the things I think when I look at some of those smaller companies, those ones that have actually brought in maybe a corporate venture firm, I think are probably going to find it easier to keep scaling because they've got effectively a venture arm of the big chunk of capital with them than just the purely financial. 

So the other place I think is maybe you'll see some more patient capital from private offices and so on start to come in as well. We're talking to a lot more of those private offices who are saying “look, we want to have an impact” and therefore maybe they'll be ready to actually be part of that bridging as well. 

Joanne 

The role that banks play, the role that private investors play. Tell me a little bit more about that. How different stakeholders in this environment should be working together? 

Julian 

Well, I think again, back to your question around the $20 trillion and how do we get there, it's going to take everybody. So I think what matters is that governments are not saying “we're going to do this, but not that” – I'd rather you had a framework where it's everything  lots of ‘ands’ rather than ‘either / or’ from a government stakeholder standpoint. I think from a broader financial standpoint, again, you need everybody in the room. The oil and gas companies need to transition, but actually we can put a lot of capital behind those oil and gas companies if they're serious about transitioning. 

The other thing I think, look, it's slightly a challenge back to investors I would put out there as well, which is look, one of the reasons to my earlier thing of getting more corporate finance deployed, that's not being deployed because people are prioritizing a return to shareholders.

Well, again, if we all believe – as we do at Bank of America – that this is a secular growth story that we all want to get behind, then actually that growth story should mean that shareholders should want that cash to be deployed into that growth story from the balance sheet, big capital, corporate finance into big projects as opposed to necessarily going out to equity investors just as dividend and cash returns. So I think from everybody's standpoint, it's just getting alignment that this is an absolute priority and then if everyone's in the room hopefully we can get to the right place on a decent timetable.

Joanne 

As we've spoken about many times, for the transition to actually work, much like any other great change in a capital market, it has to be profitable and that needs to be a story which can be sold to investors, whether that's value investors or growth investors. What do you think needs to be done there? Because from my perspective, there's still a gap first in proving value and secondly in the understanding  of the investor base on what's required. 

Julian 

Well, look, I think there've been particular challenges just given what we've been through the last few years, which have impacted the supply chain – and costs. So that is an issue which we're just going to have to work through.

I think beyond that, you've got different approaches being taken by different governments as well. So, from incentivizing capital  in the United States to more of the market-driven – I'd say more market-and-stick approach – in terms of what's happening in the EU. The reality really to make things happen, you've got to deploy both. 

And I also think from a government standpoint, wherever you are, if we're in a climate crisis and we drive things,  what more can we do and how should we be doing that to really make things happen? Something like the Inflation Reduction Act here in the US has been fantastic, but again, you look at it, it's been a big initiative but if you look at it relative to say what was done when we were in the middle of COVID, the COVID Act deployed more capital than is probably going to be deployed through the IRA over the next period of time. 

So again, if we're in that kind of climate crisis, a lot of it is saying, “look, how do we drive change through pulling all the levers at once?” And that goes to market incentives, CapEx incentives, clarity and framework from governments, from my earlier point – not having ‘either / ors’, but just people having contributed anything they're doing that contributes to hitting the goals of meeting that energy demand in a different way. That we're aligned is going to be critical. 

Joanne 

Well, it’s been great to speak with you and I know we’ll have far more discussions at South by Southwest on this topic. Thank you Julian. 

This transcript has been edited for clarity