Several years ago, when the drips through our ceiling could no longer be ignored, we decided to install solar panels along with a new roof on our Berkeley, California, home. Then when we needed a new car after our son arrived, we opted for a Toyota Prius.
We paid a premium for our little bit of green chic. That is, the money saved on our monthly electricity bill and at the gas pump didn’t immediately justify the price of the not-yet-mainstream products. We figured the photovoltaic system wouldn’t save us money for at least a dozen years, and it may be at least half that long for the gas-electric hybrid to pay for itself with better gas mileage. Were counting on global instability and corporate malfeasance to make our investments pay off, we joked to friends. And we haven’t been wrong yet!
At about the same time, across the San Francisco Bay, Peter Liu was making a much bigger bet on the same trends, literally banking on the green economy. Liu, a chemical engineer by training, assembled a Who’s Who of Silicon Valley investors and others to put up just less than $25 million to open the first explicitly green bank in the U.S.
Since then, with a single branch and nearly no marketing, the New Resource Bank has attracted $166 million in deposits, including $10 million from the state of California. For individuals and institutions that have to bank somewhere, having ordinary savings and checking accounts in a bank that puts the money to work with loans to organic food producers, green developers, and sustainable businesses has powerful appeal. As of June 30, deposits had more than doubled from a year earlier, while loans had nearly tripled, to $98 million.
Green may be the best kind of bank to be in these economic conditions, says Julius Genachowski, co-founder of the investment firm Rock Creek Ventures. He was one of New Resource Bank’s original organizers and came up with its name. “I think we were early in recognizing that a bank that focused on this market could also be a successful business.”
The promise of the green economy enabled Liu to raise an additional $14 million from investors this summer, despite the meltdown on Wall Street. New investors included Generation Investment Management LLP, the fund established by former U.S. Vice-President Al Gore and his partner, David Blood (their moniker, Blood and Gore, is a good description of the financial markets). Triodos Bank in the Netherlands, one of the world’s first banks established specifically to finance sustainable businesses, increased its stake in New Resource Bank. The amount of new financing fell short of New Resource Banks targets, but nonetheless gave the bank room for growth in both deposits and loans.
These days, making loans to businesses like organic cheese-maker Cowgirl Creamery, and offering no money down financing to homeowners interested in putting solar systems on their roofs no longer seems risky compared to investments in, say, subprime mortgage backed securities. (New Resource Bank did recently announce its first bad investment, a $1.9 million residential construction loan.)
Still, in the financial ecosystem, banks like New Resource represent an evolutionary growth spurt. Socially responsible investments, now 10 percent of the market, primarily seek to avoid harmful practices. Green venture capitalists made a record $2 billion in equity investments during the second quarter of 2008, according to Cleantech Group, a San Francisco research consulting firm. That has created a boom (dare we say bubble?) in green technology startups. But scaling up the green economy also requires the kind of bread-and-butter credit traditionally provided by banks as business and construction loans or, say, financing for residential solar power systems that allow homeowners to pay a monthly installment. New Resource Bank is committed, as it says in its financial statements, to financing efficient and sustainable resources in its community.
Liu, now vice chairman at the bank he founded, insists the new market dynamics have reversed the historic trade-off between social benefits and financial returns. Now sustainability is good business. When New Leaf Paper in San Francisco started to deliver 100 percent post-consumer recycled paper in 1998, for example, few paper mills had made sustainability a cornerstone of their business practices. “With New Leaf growing 30 percent a year, competitors are starting to change their ways,” says founder and chief executive Jeff Mendelsohn. “New Resource Bank offered a slightly better interest rate than New Leaf’s previous bank on a $3.9 million line of credit,” he says, “which New Leaf uses to fund accounts receivable, inventory, and other business needs.” “They’ve been a good partner as we navigate this fast growth,” Mendelsohn says. “They invest their time and their financial skills. It’s more than an arm’s length financial relationship.”
Paul Herman, founder of HIP Investor, a researcher and consultant for investors looking for socially responsible and sustainable business opportunities, says New Resource and a handful of other banks around the U.S. Green Bank in Texas, Home Savings Bank in Wisconsin, and Charter Oak Bank in California, to name a few, fill a market niche for small green enterprises. “Access to capital allows the opportunity for those businesses to prove they can be profitable,” Herman says.
In this economy, a green bank provides a rare opportunity for depositors to leverage money to support their values with little risk, since the Federal Deposit Insurance Corporation now insures deposits up to $250,000. As a rule of thumb, New Resource, like other banks, is able to lend ten times the amount of money it has on deposit, meaning a $100 deposit can enable a $1,000 loan to a green business. And since New Resource covers the ATM fees charged by other banks, depositors can get their money any time from any ATM.
Without a real marketing push, New Resource already has more than 1,000 depositors, including Ode. “We believe that we are evolving from what was yesterday a social movement into a market opportunity,” Liu told me in the bank’s only branch, a LEED certified green office in San Francisco’s South of Market neighborhood. “That’s what we are engaged in—a market expansion exercise.”
Part 1 | Part 2
Photo courtesy of Ode Magazine