What does a community bank that is climate-focused and zero carbon look like? FinTech Futures spoke to Climate First Bank’s founder, Ken LaRoe, and CTO, Marcio deOliveira, about the US entrant’s ethos, technology, and plans, including its mixed views on fintechs.
Climate First Bank is a new entrant to the US market. Based in Florida and opening for business on 1 June 2021, it claims to be the country’s first climate-focused community bank.
It began with personal and business loans, deposit account management, and cash management via online and mobile. The first branch was located in St Petersburg. A second branch is now open in Orlando.
The bank needed a solid core system that was reliable and stable. Now it is looking at open APIs to help innovate. This could be by building its own capabilities or partnering up with fintechs.
Finastra is now home to the Phoenix core system. Climate First Bank runs it on Microsoft Azure. Phoenix was developed during the first half of 1990s. It was adopted in that decade in part by Climate First’s founder, chairman, and CEO Ken LaRoe. Climate First is his third bank. He previously sold Florida Choice Bank and First Green Bank.
As well as the functional requirements, Finastra had to satisfy the new bank’s environmental remit. LaRoe met Simon Paris, Finastra CEO and was assured that the supplier had the right ethos. Before the selection of Azure, there were similar conversations with Microsoft.
Phoenix constituted a mature, stable platform, says the bank’s CTO and chief digital officer, Marcio deOliveira. “2021 was about building the foundations.”
The bank is looking for an API layer that will allow it to unlock the innovation it desires. Its vision is that the core system will be a simple system of record, a collection of debits and credit, with an open digital layer at the front.
To this end, it is adopting Finastra’s FusionFabric.cloud open development platform. “It is new for us, we are just getting started,” says deOliveira.
LaRoe expected fintechs to play a role in the bank’s innovation but, while not ruled out, he is cautious. When he has looked, “we’re ahead of them, time and time again”.
DeOliveira says that fintechs might have an advantage when it comes to pure technology. Banks have the enormous advantage of being FDIC-regulated depository agencies. Climate First Bank might therefore have more to offer fintechs than vice versa, by offering a Banking-as a Service (BaaS). He describes it as “a key component in our strategy”.
“For a community bank, why outsource to a tech company… it is a hard analysis,” says deOliveira. For one thing, “there is a mission element to everything we do”, so those fintechs would need to also be aligned to this.
“I am really irritated by some of the fintech greenwash going on,” says LaRoe. He is particularly scathing about some of the solar financing fintechs – “predatory, scummy, not transparent”. Climate First’s objective is to provide solutions that are good for the consumer and put solar panels on US roofs. If the bank makes money from this, then that’s good, but it’s not the priority, he says.
Climate First Bank offers loan programs for solar energy, with a focus on residential as well as commercial use. LaRoe states that other banks are eager to white label these loans. “They are very keen on our solar programme because none of them are doing it.”
Climate First Bank has a BaaS partnership with Atmos Financial, a savings fintech. Atmos was launched in January 2021 and focuses on shifting capital away from fossil fuels to clean energies.
The bank certainly “walks the walk”. Via global non-profit network 1% for the Planet, Climate First Bank pledges to donate 1% of annual revenue to support sustainability-oriented non-profit organisations that are tackling the planet’s most pressing environmental issues.
The bank has B Corp status (this means its performance is verified against the B Impact Assessment which measures how a company’s operations and business model impact governance, workers, community, environment, and customers).
It plans to become a member of the Global Alliance for Banking on Values (GABV) – LaRoe’s First Green Bank was an early member but banks have to be operating for at least one year before being eligible for membership.
It is also a part of the Net-Zero Banking Alliance. This industry-led, UN-convened alliance consists of banks from all over the world that are committed to reducing their emissions and aligning their investment portfolios with net-zero emissions by 2050, or sooner, in line the most ambitious targets of the Paris Climate Agreement.
It seeks to align with four of the UN’s Sustainable Development Goals (SDGs): affordable and clean energy; sustainable cities and communities; climate action; and partnerships for the goals. Its manifesto heavily draws from Project Drawdown, which describes a plan to reduce atmospheric CO2 levels and stop climate change as quickly as possible, safely, and as fairly as possible.
Inspirated by Drawdown it launched a new regeneration checking account in collaboration to Paul Hawken, one the instigators. For every new qualifying account, the bank makes a $100 donation to Project Regeneration, Hawken’s non-profit organisation advocating for a plan to end the climate crisis in one generation. Project Regeneration also receives all interest earned on the account. Customers receive a free autographed copy of Hawken’s book, Regeneration.
In terms of being zero carbon, “this is the most difficult thing to figure out”, says LaRoe. It has environmental, socio- and governance (ESG), specialists within its team. We Are Neutral is also advising it. We Are Neutral is a Gainesville-based non-profit that helps individuals and businesses reduce and offset their carbon footprints. “We are all in, there is no compromise on ESGs, from day one they were in our business plan,” says LaRoe.
The bank uses the PCAF approach to assess the greenhouse gas emissions related to its loans and investments. PCAF is a global alliance of financial institutions that works together to develop and implement a harmonised accounting method to set science-based targets and align their portfolio with the Paris Agreement.
It is difficult to quantify the impact of IT on both internal and external systems. For Azure, Microsoft provides a dashboard to quantify a user’s carbon footprint. Offsetting is an essential part of being carbon-neutral. However, the bank only does this when it has taken every direct step to achieve zero carbon. “It is very important to not see offsetting as a way out, we are very conscious of that,” says deOliveira.
LaRoe says that the bank ultimately wants to embrace zero carbon for both scope one and three emissions. However, this is a difficult task with thousands of corporate and personal customers.
It can inform and push customers at the moment. This can include providing data that helps people understand the environmental impact of their behaviour and actions. Once they have this information, the bank can offer options and incentives to encourage them to change their daily activities. And it can provide transparency around how customers’ deposits are being used. DeOliveira said that the bank’s customer base is engaged and interested. “They are open and willing to work with us every day.”
It also aims to reduce its carbon footprint and ensure that all its buildings are net zero.
The climate crisis is only too apparent in Climate First Bank’s home state of Florida, with the threat of ever increasing storms and super-charged hurricanes, sea level rises, and record-breaking heat days, among other climate impacts. The bank claims to have been carbon-neutral since day one. It also pledges to never invest in extractive industries and views every decision as a Drawdown.
LaRoe hopes others banks will follow his lead but, for now, his bank remains one of a few that has such a mandate. This alone is attracting customers. The technology that will enable it to innovate is intended for further reach and impact.