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Three U.S. banks have been recognized for their socially and environmentally responsible banking practices - termed "green" banking by the Community Investment Campaign, which handed out the kudos. Two of the banks - Wainwright Bank & Trust Co. in Boston and Chittenden Corp. in Vermont - let depositors direct their money into a fund tapped only by borrowers who meet certain standards of beneficence. The third, Shore Bank Pacific in Ilwaco, Washington, lends only to businesses that use sustainable resources.
While social responsibility is certainly nothing new to bankers, focusing on environment-friendly businesses and carving out a niche for customers with social agendas is a budding practice that participants expect to grow. The Community Investment Campaign, a joint effort of the Social Investment Forum and Co-op America, identified it as "flourishing at the grass-roots level."
"It's growing slowly," says Cynthia H. Gubb, vice president and director of $2.8 billion Chittenden's community development services. "We want people who are committed to the idea, not just jumping on board because they think it's a fad. There's a great number - and it's growing exponentially - of people who want to know where their money is invested."
Most Socially Responsible Banking (SRB) programs fund environmentally sensitive projects, community housing, small businesses that support minorities, and the like. Today the numbers are small. For example, only about 12% of total Chittenden deposits - or $138 million - is in the SRB fund. The fund has a $113 million loan portfolio. At Wainwright, 40% of the loan portfolio is dedicated to socially responsible banking, but Wainwright has assts of only $512 million. ShoreBank Pacific, a six-year-old bank created for the purpose funding environmentally sound projects, has only 70 customers who meet its "green" standards.
But it's a stable line of business. Wainwright, which has been working on social responsibility since it lent $7 million to a local homeless shelter 10 years ago, has a zero default rate on those loans, says Steven F. Young, executive vice president.
"The loans are very good, very solid. They perform well," says Ernie Pamerleau, a director of Chittenden and former chair of Vermont National Bank, which was acquired by Chittenden in 1999 and which had an SRB program.
The three banks recognized were among 10 organizations that fund "green" projects. The other seven were nonbanks. Moreover, they are not the only ones in the country with "green" or socially responsible banking programs. South Shore Bank in Chicago was one of the originators and cofounded Shore Bank Pacific with Eco Trust, an environmental nonprofit.
Shore Bank Pacific is the only one of the three that exists solely to provide funding for environmentally friendly companies. Shore Bank Pacific is a $71 million commercial bank. It lends to companies who future depends on the use of sustainable resources. Based in the Northwest, where dying fishing and forestry industries dragged their banks down with them, Shore Bank Pacific funds businesses that take a long view toward natural resources.
"Sustainable banking means sustainable communities and sustainable businesses," says Dave Williams, Shore Bank Pacific's CEO. "To have a sustainable economy, a business's practices have to be such that they will be around a long time. What we ask is "Are their practices sustainable?'"
Most of its lending has been to businesses in the Northwest. Shore Bank Pacific has been asked to take a small role in a large housing development in Portland that hopes to distinguish itself with "green" aspects in the building. But the bank has branched out some geographically, too. It helped fund an ethanol plant in Wisconsin. First, though, it had to talk the owners out of using genetically altered corn. It also has been asked to work with a large organic dairy co-op.
The other banks recognized by the Community Investment campaign can also boast "green" loans, though not exclusively. Wainwright has done more work with nonprofits than the other two programs. It also extended credit to groups such as Earthwatch Institute and Silent Springs Institute, which examines relationships between environment and health. It has funded several communities for preservation of public lands. It also has teamed up with Mass Energy and Solar Boston to offer a discounted home equity line of credit for money used to install solar energy systems.
Conservation and agriculture make up one area of focus for Chittenden. The Community Investment Campaign specifically cited Chittenden's relationship with a customer that experiments with water remediation and restoration and producing food by developing ecosystems in urban areas. It is easy to see that such efforts show an investment into the community. But it is not always so easy to translate these efforts into compliance with the Community Reinvestment Act. For Shore Bank Pacific, CRA is tricky.
"We are in the final stages of developing a strategic plan for CRA purposes at the request of regulators," says Williams. "We are operating outside of traditional CRA measures…the community development stuff we do with developing businesses is having impact on individuals. But CRA doesn't assess that very well."
Young at Wainwright agrees, especially as it applies to environmental lending. Regulators don't have a box to check off for environmental sensitivity. "Regulators say, 'Gee, you're doing great things, but we don't have a place for this in the overall exam." Young says.
Other aspects of SRB have more predictable results.
"Every time we get reviewed by the feds, it's part of their analysis and SRB shines in that stuff," Pamerleau says.
While the loans tend to be a good risk, they are harder to nail down than a lot of conventional loans.
"It isn't quite as straightforward," Pamerleau says. "There's a lot of massaging and a lot of handholding to get it through." The incentive for Chittenden employees is that per every so many customers won to SRB, the employee receives up to $1,000 to donate to a favorite cause.
For directors, SRB or green banking provides an extra incentive to serve on the board.
"It instills additional pride in a director when you are part of a force in the community and you have a culture that focuses on this type of thing," Pamerleau says. "It has a lot of indirect benefits. Bank morale is high. People are proud to be associated with the bank. It's fun. It generates pride. It's a good book of business."
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