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
What does the leading edge look like?
Nimbler banks around the world are rethinking their roles
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
* 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
* 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
“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.,
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
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
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
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
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
I would like to acknowledge the invaluable contributions
of Maria Umbach and Brad Peirce in the creation and writing of this article.