The Green Finance Podcast: Running a bank with climate change at its core, with Climate First Bank CEO Ken LaRoe

Hello green financers, hope everyone is doing well and getting cozy for the upcoming winter season. Sweater weather is almost here in Romania, and to be honest I'm layering up to avoid those high energy bills. Fun times here in Europe, what can I say. 

But I will be getting some warmth in December. I'll be going to Miami at Tearsheet's Big Bank Theory Conference, so please come join us for this super fun event on December 8th. Perfect time for a quick visit to Miami. We'll have TED-style speakers, but also experimenting with more roundtable off the record discussions. We're talking banking and financial services in today's digital world, learning not just from banks or fintechs, but also brands outside of banking that are embedding financial services on their platforms. 

And speaking of Miami, Florida, that's also pretty close to my podcast guest today. 

I'm super excited to introduce Ken LaRoe, founder and CEO of Climate First Bank. Ken is not only an inspiring leader and a big climate advocate, but also a veteran banker, having started three banks in one lifetime. How many people can say that?  

In addition to making a profit, banks can be a societal force for good. This is why Ken came out of retirement to start Climate First Bank, the world’s first climate-focused, FDIC-insured commercial bank. Climate First Bank joined the Net-Zero Banking Alliance in January 2022 and is currently in the process of building out its 2050 plan.

Climate First is based in Florida, a state destined to be the epicenter of climate change-induced effects. They really want to set an example for other banks, especially when it comes to emissions reporting. 

We also chat about the politicized world of climate change. It's not easy to be a climate advocate in Florida, where the political winds blow against this agenda. Ken also shares with us some of his experiences on this front, really really interesting, so let's jump right in.  

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The following excerpts were edited for clarity.

How did you build sustainability and the cause of climate change into the business plan of Climate First Bank?

From the start, when we actually put the bank charter application together, we wanted it to be in our DNA. My last bank, First Green Bank, was kind of bittersweet when we sold it. It felt like a lot of unfinished business, but we opened it in 2009, so that was before ESG was a thing, before any of this stuff even had abbreviations or acronyms. 

It starts with the name, Climate First. And my wife, Dr. Cindy LaRoe, came up with a name and said it's got to be in your face. It's got to dictate right up front what we're all about. So the question became, well, what does that mean? What does climate first mean? It's a bank, it's highly regulated. It's got this big umbrella of guardrails, if you will, restrictions. 

I happened to be reading the book Drawdown by Paul Hawken, it's kind of the seminal study of what can be done today to reduce atmospheric CO2. And out of all of the initiatives in the book, I thought, well, if I go through and pick out the stuff that a community bank can do, that can be the foundation of the business plan. And so that's what we did. There's really 12 things that a community bank can do, and so we integrated it into the plan.

We actually integrated it right into the application for the bank charter, against my attorney's advice, because he said, if you put that in there, it'll slow down the process. They'll have lots of questions. And I said, 'No, no, no, it's got to be in there. I want the questions up front. I don't want the questions two years down the road when we're trying to put together some loan program that's climate centric, or whatever'. And it worked. There were questions, but it was a really nice educational process. And I feel like our regulators are far ahead of most of the regulators nationwide in understanding of all this stuff, of value space banking, and what it means. 

But to go full circle on all that big picture macro stuff, the micro stuff is our residential rooftop solar program. We have really gotten traction with it. And I'm super excited because we never really did get traction at First Green Bank. We fully digitized the process, so a consumer can go on and fill an application in three minutes. 30 seconds later, they get their answer. And no more than two days, they've got their documents in their hands to sign the loan.

Could you give some examples for ways maybe other financial institutions can draw inspiration from to continue to support our transition towards a net zero future?

Well, one of my dreams, going all the way back to First Green Bank, was to develop the playbook if you will, for value is based banking, whether it's financial inclusion, racial equity or environmental issues. But in the state of Florida, it never took off. No one ever showed an interest because we were basically going to open source everything that we learned. 

I was very fortunate to be involved with the Global Alliance for Banking on Values. It was formed in 2009, the same year we opened First Green Bank, and there were only a handful of value-based banks in North America. Now there's, I don't know, probably 20. So it is broader than we think. And there are banks that have been converting, which is really, really fun to see and encouraging. 

But there's a big giant divide between community banks, and then bigger banks. Well, there's three, really – there's community, there's regionals, and then there's the Giants. The regionals honestly could probably have the most impact if they would adopt any of these practices. So far, none of them have, which is just crazy to me. But for community banks, it probably is a lot easier, because we don't have the ability to do big deals for dirty energy. We don't have the scale, we don't have the size. 

The regionals can, and a lot of them are involved in that type of stuff. But on the community bank side, probably the easiest thing to do would be to adopt a negative filter or negative screen for deals they won't do, that makes it really easy, they can tell the customer right up front, 'we don't do extractive industries'. That's one that's on our list. And in Florida, that could include sod farming, water bottling, and we have a lot of that, and we just don't right up front. I think that's probably the best place to start. And then probably the best place to prove it is to become a BLAB certified B Corp. That's the only really strong vetted measure to show that a business is really committed to a value proposition.

What is a B Corp?

There's a nonprofit called B Labs that started here in the States, and the concept was to come up with a vetting system and we'll award the B Corp certification to companies that meet the criteria. It's multifaceted, it covers pretty much everything that can be encompassed in ESG. 

I think there's 200 metrics, and out of those, you have to hit 80 to be certified. And again, includes everything. For instance, we're not so good on financial inclusion, that's a whole separate project, with a capital P. But we do so much on the environmental side that we get so many points there. So we are what's called a pending B Corp, because you have to be in business a year, and we just passed our first year in business. We filed the remaining documents to become a full B Corp. But there's very few banks that are B Corps. There are some but there's very few. And if a company's a B Corp, you know that in their heart of hearts, they're gonna do the right thing.

What would a sustainable economy in the US look like? And how differently would banks behave in that scenario?

Well, that's a tricky question. Brian Monahan, the CEO of Bank of America, just had an interview and he was talking about them having $40 billion, and in a pipeline or in loans to dirty energy, but they've got $50 billion in clean energy. And it's the whole 'just transition' argument, and I get it. A loan is a contract, under the terms of that contract, the bank can't unilaterally go in and say, well, guess what, we don't like your industry, we're calling that loan. There's no way they can turn it off overnight. I believe that. 

I mean, if I was CEO of Bank of America, every one of those loans that came due, I would say we're not renewing it, go find somewhere else. If for no other reason, that makes it more difficult and more costly for dirty energy to keep doing what they've been doing because the externalities are not factored in. If the externalities were factored in, they wouldn't be making nearly as much money and they should have to pay.

That's one kind of unrelated answer to the question or observation to the question. But at the end of the day, what would it look like, I'm not sure. I think we just have to change everything we do. And we have to change it now. There may need to be a transition. But there are dates on those loan renewals, and the minute those dates come up, there needs to be something proactive and impactful done, but it really involves everything. It involves a deep dive into absolutely everything a bank does or any business does.

Speaking of long renewals, is it as easy as pulling the plug that way? Because when we had the activist shareholder initiatives earlier this year, they were suggesting this exact same thing - to stop renewing these contracts. And then the executives of the biggest banks in the US came back and argued that it just wasn't feasible. It was too sudden, it couldn't be done. What's your take?

Well, I think it's legally feasible. But whether it's practically feasible, that's where I can see the problem. Legally feasible, a loan matures, you can say, No, we're not renewing it, it doesn't matter how much you love the company or the income stream or whatever. Now, whether the CEO of one of those big banks that's got all the shareholder pressure can actually get away with it and keep their job, that's the other question. And the answer would be probably not. 

I think Larry Fink's a good guy. In his heart of hearts, he's wanting to do the right thing. I think Jamie Dimon's a good guy in his heart of hearts, he wants to do the right thing. And we've seen a couple of years ago, them all coming out with big shareholder missives claiming that they're, you know, doing all this ESG stuff, and now they're reversing themselves. And that's all because of shareholder pressure. It's irritating. It's tragic. But I mean, yes, legally, they can do it. 

I guess what we're reading is the reason they're not doing it is because they're getting hammered every time they bring that up, and then somebody starts screaming woke capitalism and all that kind of stuff. I don't know, there was a period where activist CEOs were welcome. But it seemed like that only lasted like six months. And now it's back to, you know, keep your mouth shut. I worry about it, at this tiny little scale that I am, if I get too vocal and out there, that somebody on my board is gonna put their arm around me and say, 'Hey, can you know, scale it back a little bit?' They haven't. And I hope they never do, but I do worry about it.