Banking On Natural Capital - environmentally and socially responsible bank, ShoreBank Pacific

MAPPING PATHS TO CONSERVATION-BASED BANKING

ShoreBank Pacific is perhaps the first bank dedicated to fostering a conservation-based economy. Ecosystem liquidation and degradation are banned from the business plan. The bank has begun mapping new business approaches to ensure that the economic activity it helps to support always includes social and ecological accountability. ShoreBank Pacific is a small pioneer, with eight employees, headquarters in Ilwaco, Washington near the mouth of the Columbia River, and loan offices in Seattle and Portland.

Last year, Chicago-based Shorebank Corporation, in tandem with Ecotrust (a nonprofit conservation group out of Portland), founded ShoreBank Pacific (SBP). For twenty-five years, Shorebank Corporation has been rebuilding inner city neighborhoods block by block, offering loans for small businesses and housing renovation in areas avoided by other lenders. The new bank, a wholly owned subsidiary of Shorebank, works with an affiliate nonprofit business development organization, Shorebank Enterprise Pacific. Since 1994, the enterprise group has provided marketing services and credit from a $3-5 million revolving loan fund to entrepreneurs and businesses in the Lower Columbia and neighboring watersheds--an area of degraded ecosystems, rising unemployment, slipping incomes, and declining investment in resource-based livelihoods (farming, fishing, and forestry). There is a great regional thirst for both economic and ecological revival.

Like any responsible bank, SBP is super careful and conservative. It adheres to time-tested practices: thorough and prudent lending and long-term relationships with investors, borrowers, depositors, and the communities. Unlike most other banks, SBP's sole goal is not maximum profits and expansion. Through loans and conservation recommendations, SBP hopes to initiate a wider public policy discussion on fiduciary responsibility and community reinvestment, a discussion that will include conservation principles, alternatives to government regulation, and, in rural areas, measurements of ecosystem services and biodiversity indicators. There is no model to follow in establishing ShoreBank Pacific. SBP's working partnership with Ecotrust and Shorebank Enterprise Pacific is pathbreaking; the map is new. ShoreBank Pacific's ability to meet its mission--the development of progressive loan products and environmental services--will require continual adaptive reckoning and self-appraisals.

The Responsible Banking Toolkit

LOANS: Like any other bank, ShoreBank Pacific is a financial intermediary that accepts deposits and offers commercial loans, lines of credit, mortgages, and residential home equity loans. ShoreBank hopes to distinguish itself by quantifying the cashflow benefits of improved environmental management practices and applying this information in its evaluation of loans. It's no easy proposition: cashflow and environmental benefits can occur over time scales that are not quantified adequately by tax, regulatory, or present-day accounting.

An urban borrower, for instance, might seek financing to purchase a waste-heat exchanger that generates cost savings in energy consumption, waste disposal, and insurance. When downstream cashflow benefits and environmental improvement work in harmony, a SBP loan officer might structure the price, repayment conditions, or other terms of the loan accordingly. For ShoreBank Pacific, this cashflow analysis of environmental practices is critical. It may allow loans that another bank would forgo.

To finance some conservation-based projects, SBP will form joint loan partnerships with another bank. ShoreBank may run into thorny moral/financial landscapes: How to balance the other bank's investments --which may be blind to conservation issues-- with the "good works" goals of the specific partnership?

EQUITY CAPITAL: ShoreBank Pacific's loan quality, capital adequacy, and solvency are reviewed systematically by federal regulators. The bank's deposits are insured by the FDIC. Unlike most banks, however, ShoreBank Pacific's equity capital was obtained primarily from foundations making program-related investments. It has raised more than $7 million (about $6 million from philanthropic sources) toward a goal of $9 million. Shorebank President Ron Grzywinski refers to this equity as "patient capital" because both the investors and the investment are patient, giving as much weight to long-term community and environmental health as profit maximization. Based on typical equity-to-liability ratios for a bank of its size, ShoreBank Pacific's "patient equity capital" can support deposits as high as $100 million.

Once again, as a conservation-based financial institution, SBP must trailblaze: how and where should it invest its equity capital, capital closely regulated and tightly constrained by federal laws? How to non-harmfully invest its deposits? There are no simple answers to which "green screens" should be applied. Navigating with two captains--its fiduciary responsibilities and its professed green and non-harmful investment goals--SBP covers unchartered ground.

LOCAL BANK/GLOBAL DEPOSITORS: ShoreBank Pacific offers mission-based "EcoDeposits." Almost 800 depositors have deposited more than $7 million, mostly in small amounts. Most banks emphasize retail banking and compete for depositors within their local communities. ShoreBank Pacific seeks depositors nationally (at present, from forty-nine states) and worldwide (at present, from seven foreign countries). ShoreBank Pacific's smaller CDs are competitive with regional rates and national averages for comparable accounts. As ShoreBank's deposit base grows, loans will flow into a rural area that has suffered disinvestment because of liquidation of the natural resources on which residents depend.

MELDING PRIVATE/PUBLIC FINANCE: ShoreBank Pacific is, in part, a specialist small business lender that looks to work with other banks, public sector agencies, and nonprofits. Collaborations between SBP and the private/public sectors will hopefully create a new financial "toolkit" for conservation-based development. Shorebank Enterprise Pacific initiated one such project on the Astoria, Oregon waterfront, where hydrocarbon contamination from an abandoned plywood mill threatened an intertidal mill pond that empties into the Columbia River. The contamination prevented site re-development. An existing collaboration included capital from the enterprise group's revolving loan fund and matching funds from the EPA brownfield cleanup division. It also included the state, the city, and another local bank. Together, they made site remediation possible. ShoreBank Pacific has now joined Shorebank Enterprise to work with the city and developers to bring back the site's productive use.

SMARTER SELF-ANALYSIS = SUSTAINABLE PERFORMANCE: ShoreBank Pacific and its partners (Ecotrust and Interrain Pacific) are developing new forms of technical support for the bank's customers. These environmental services will help businesses measure resource inputs and outputs, evaluate products based upon resource use, and review benchmarks relative to similar sectors in industry. With this information, the bank can help customers, especially small and medium-sized customers with limited time and resources, to establish baselines, benchmarks, strategies, and options to improve efficiency and performance.

ShoreBank Pacific starts with the recognition that, in today's world, diminishing natural capital and the limited capacity of living systems to absorb human influence are major constraints. It believes that experiences in rural Oregon and Washington have demonstrated that ecosystem conservation and community development can evolve into a balanced symbiosis. Forthright consideration of market, ecological, and financial systems can widen a bank's view of community and should, by extension, help to reduce the bank's credit risk. ShoreBank Pacific hopes its new niche will become every bank's niche--that other banks will eventually realize that conservation-based development is their business too.

John Haines is Vice President of Shorebank Pacific. He's from a fourth generation banking family in Wyoming. He started Trenton Business Assistance Corporation in New Jersey, a still-thriving microenterprise loan fund. He's worked in commercial corporate lending in Portland, Oregon. More recently, he spent a year and a half in the Czech Republic helping the government set up the Czech Fund for the Environment.

I'm still envious of his nineteen-week pirogue trip down the Niger River, bamboo-poling his way to Timbuktu.

RELATED ARTICLE: Socially Responsible Banks

by Whole Earth staff, with help from Co-op America's Green Pages and the GreenMoney Journal

Most offer all the usual services: checking, savings, money market accounts, CDs, IRKs, and loans to individuals and businesses, along with the features noted.

Albina Community Bank

2002 NE Martin Luther King Blvd., Portland, OR 97217; 503/288-7286.

Mission is to accelerate the redevelopment of the community while ensuring that all groups, low-to-middle income, minorities, and women, have opportunities to share in the community's economic upturn. Microlending, affordable housing construction, and small commercial development. They hire people from the community--half the staff lives in the target area.

BankBoston

(First Community Bank) 100 Federal Street, Boston, MA 02110; 617/434-8267, fax 617/434-2631, gsnowden@bkb.com.

Finances wealth creation and economic development in low- and moderate-income, underserved, and emerging markets through creative partnerships, loans, investments, and retail banking services.

Bank of Newport

1000 SW Broadway, Suite 1100, Portland, OR 97205; 503/224-4245, fax 503/220-4226, www.westcoastbancorp.com.

Deposits in the program are used exclusively for loans and short-term investments in small business, affordable housing, and community development.

Blackfeet National Bank

PO Box 730, Browning, MT 59417; 406/338-7000.

This institution, 94 percent owned by the Blackfeet tribe, focuses on developing the reservation economy. Approximately 90 percent of loans made go to reservation residents.

Community Bank of the Bay

1750 Broadway, Oakland, CA 94612; 510/271-8400, fax 510/433-5431.

Specializes in small business lending, loans for development of affordable housing, and loans to nonprofit organizations.

Community Capital Bank

111 Livingston Street, Brooklyn, NY 11201; 718/802-1212, fax 718/243-0312.

Full-service bank supporting community development in New York City.

Elk Horn Bank and Trust

601 Main Street, PO Box 248, Arkadelphia, AR 71923; 800/789-3428, 501/246-5811, fax 501/246-5284, stiffler@ehbt.com, www.ehbt.com.

The first rural community development bank focused on enterprise and job creation in distressed southern Arkansas communities. Open a socially responsible Community Deposits checking, savings, money market, CD, or IRA.

First Trade Union Bank

25 Drydock Avenue., Boston MA 02210. 617/482-4000.

The only bank in the country owned by union pension funds.

NCB Savings Bank

139 High Street, Hillsboro, OH 45233; 800/322-1251, fax 523/393-4064.

Helps cooperatives create housing, jobs, and important products.

Shorebank Pacific

PO Box 400, Ilwaco, WA 98624; 888/326-2265, fax 360/642-4078.

See article above.

South Shore Bank of Chicago

7054 S. Jeffrey Boulevard, Chicago, IL 60649; 800/669-7725, fax 322/753-5607, deposit@sbk.com.

National depositors and local borrowers rebuilding urban neighborhoods.

Support Financial Services, Inc.

3577 Nykand Way IV, Lafayette, CO 80026; 303/499-8189, fax 303/499-3923, zpaiss@aol.com.

Provides consulting and early stage bridge financing to qualified co-housing and other community groups.

Vermont National Bank's Socially Responsible Banking Fund

PO Box 804, Brattleboro, VT 05302; 800/772-3863, fax 802/258-4098, dberge@vnb.com.

Uses deposits only to support flexible loans for affordable housing, environmental and conservation projects, sustainable agriculture, education, and small and dual bottom line businesses.

Wainright Bank and Trust Company

63 Franklin Street, Boston, MA 02210; 800/444-2265, 627/478-4000, fax 627/478-4020.

Has over $50 million committed to local development projects including housing for people living with AIDS, breast cancer research, and the protection of wilderness areas.

Credit Unions

National Federation of Community Development Credit Unions

120 Wall Street, 20th fl., New York, NY 10005; 222/809. 1850, fax 212//809-3274.

The national association for credit unions that serve low-income communities, both minority and other. Capitalization program acts as a "central revolving fund," accepting loans from social investors and channeling the proceeds into low-income credit unions as insured deposits.

Alternatives Federal Credit Union

301 W. State Street, Ithaca, NY 14850; 607/273-4666, fax 607/277-6391, afcu@alternatives.org, www.alternatives.org.

Deposits are re-invested in community: loans for minority- and women-owned businesses, energy-efficient cars, flexible mortgages, and youth credit union.

Self-Help Credit Union

PO Box 3619, 302 West Main Street, Durham, NC 27702; 800/966-7353, fax 919/956-4600, info@self.help.org, www.selfhelp.org.

Provides home and small business loans to low-wealth families, women, minorities rural residents, and nonprofit organizations. SHCU loaned $2.79 million in mortgages in a recent year, of which 92% went to minority households and 64% to female-headed homes. Of their $2.56 million in commercial loans that year, 44.4% went to minority-owned firms, 37.6% went to women-owned firms, and 13.5% went to co-ops and nonprofit ventures.

Banking Institutions of Special Note

Women's World Banking

8 W. 40th Street, 10th fl., New York NY 10018; 222/768-8513.

A nonprofit institution that provides loan guarantees to banks and other financial institutions for the purpose of promoting entrepreneurship of women, particularly those women generally without access to established financial services.

Creative Investment Research

PO Box 55793, Washington, DC 20040-5793; 202/722. 5000, fax 202/785-4682, www2.ari.net/cirm.

Surveys, evaluates, and publishes information collected from minority and women owned banks, thrifts, and brokerage firms. Also determines Community Reinvestment Act (CRA) ratings and reviews CRA activity at these banks.

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