In my last article, I analyzed the rising tide of sustainability in banking.
It appeared that the majority of banks were just dipping their toe in the sustainability pool, adding green features to existing products, greening operations, and boosting their philanthropic efforts.
While these innovations would enable the banks to evolve incrementally, they did little to prepare them for the rapidly changing priorities of consumers.
In this article, I'm exploring the other end of the spectrum: banks that are taking a far more radical approach to sustainability innovation.
What does the leading edge look like?
Nimbler banks around the world are rethinking their roles in society.
They're actively strengthening communities beyond traditional philanthropy. They're opening their books with greater transparency. Internally, they're enabling employees to redefine what banks should offer customers. And some are providing a new definition of value to shareholders, measuring success with a triple bottom line.
Providing thought leadership are people like Ashoka Fellow Bruce Cahan, who has created the GoodBank model (PDF file). GoodBank, currently organizing in the San Francisco Bay Area, boasts a list of game-changing innovations under the banner of the "High Transparency Bank." A selection of these innovations includes:
* Transparency in all services and governance, as opposed to simply where regulation demands,
* Financial and affinity group rewards for customers who live their financial lives consciously, helping build a self-defined ethical norm,
* Better capital access and discounted fees for business customers and NGO's that improve supply chain metrics and share quantified stories of triple bottom line operations and impacts,
* Social financial literacy technologies that give customers the experience of seeing, learning and discussing financial responsibility as a driver for family, community and global impacts.
For the layman, however, the true difference comes to light with Cahan's illustration of how GoodBank would facilitate sustainable consumer choices:
"Imagine a consumer looking for sustainable toothpaste walks into her favorite supermarket ... Scanning her regular toothpaste's bar code with her phone, the consumer does three things: shop, compare and buy. She compares prices at neighborhood stores, and whether the toothpaste brand chosen and the store itself are the most sustainable...In short order, she swipes the phone at the checkout counter to make the purchase, like a credit card. The phone also records and shares what she learned through applications for personal financial management (e.g., Mint) and social networking (e.g., Facebook)"
As Cahan's thinking goes, most of the technological applications in this scenario are on the horizon today. What's missing is a high-transparency bank that rewards the customer who shops according to her sustainable values. In short, Cahan sees GoodBank as rewarding customers who can make and keep their promise of living sustainably, supported by an entire community of like-minded folks organized around the bank 'hub'.
GoodBank's focus is not limited to enabling good customer behavior. Cahan also pushes transparency to a new level—an idea that leads thinking of what banks can and should be in the Information Age
Currently, banking information flows largely in one direction.
Banks can tap a vast array of data on customers to target sales pitches with pinpoint accuracy. Customers, on the other hand, have virtually no idea how banks use their money. It's this lack of information, as Cahan writes, that disconnects meaning from money in the customer's mind.
A growing number of banks, however, are challenging the opaque status quo.
Wainwright Bank in Boston ($1 billion in assets) openly declares its socially responsible lending strategy. In fact, it is one of the few banks in the country with a department solely committed to socially responsible community development lending. Currently, over 50% of the bank's commercial loan portfolio is committed to these types of loans.
Far from being unprofitable, or simply another form of charity, these development loans are not discounted. And, of the $700 million in loans provided, there has never been a single default.
As Steve Young, SVP at Wainwright told me recently, "The majority of Wainwright's customers are aware their deposits help fund these loans. The idea that by banking with Wainwright, they'd be supporting local community development, makes them very loyal to our brand."
The transparent marriage of money and purpose has paid off in more than profit and loyalty. Wainwright has won numerous awards (including the U.S. Treasury's 'Bank Enterprise Award') and has been profiled in publications from TIME to CNBC. Fiscal validation of the bank's policies is perhaps best illustrated by the bank's recent purchase by Eastern Bank—at 115% over book value. As part of Eastern's purchase, senior Wainwright management are remaining intact—leading one to believe Wainwright's social innovation will continue as well.
In Europe, banks like Triodos and Co-operative also push the transparency barrier. These "ethical banks" (their chosen self-descriptor) have even formed the Global Alliance for Banking on Values. The Alliance is " ... an independent network of banks using finance to deliver sustainable development for unserved people, communities and the environment."
The barrier to progress
In my conversation with Bruce Cahan, he pointed out that transparency can be sold to shareholders as more than a measure for creating social good. It is an action and philosophy that makes the bank safer and sounder. In essence, being able to see how a bank works enables more people to ring the alarm if that bank isn't working.
Given the recent spate of bank implosions that wiped out shareholder equity, it hardly seems a measure that shareholders would disapprove of.
The greatest barrier to this transparency seems to be regulation. Some believe that the regulators' safety rating methodology actually (unintentionally) exacerbates conditions for recessions. This forbidden transparency seems ironic, considering the regulation was created to make banks work better.
Having positive change hampered by regulation isn't a problem unique to the banking industry. As Common Good founder and corporate lawyer Philip Howard outlines in his TED speech, innovation in America has become hamstrung by the very law created to enable it. And as community designer Andres Duany describes in the Smart Growth Manual, creating a more sustainable living environment is, in many cases, still difficult because of restrictive codes.
From numerous conversations with progressive bankers, one message came through clearly: consumers were asking for a closer connection between their money and their values. This consumer demand has become stronger following the banking meltdown.
Another learning was that engaging consumers in the workings of your bank is a recipe for loyalty. This learning is consistent with other areas of corporate sustainability. The closer you can bring consumers to your sustainability practices, the more they reward you.
It seemed clear that smaller banks were leading the move to transparency and sustainability. But although they were making progress, they were hampered by technology and regulation. This is to be expected, as the drive to sustainability is still a relatively new movement experiencing growing pains.
And finally, success depends on both following a North Star vision, and enabling that vision to manifest itself in the day to day behavior of staff, stakeholders and customers.
So what can we conclude? As with so many areas of sustainable innovation, we are just setting the stage. The white space is immense, leaving great opportunity for determined banks willing to invest today.
I would like to acknowledge the invaluable contributions of Maria Umbach and Brad Peirce in the creation and writing of this article.