Background image of Giant homes rise up behind a pond in a forested valley


The nation’s first environmental bank

Spencer Beebe tells the story of the founding of the nation's first environmental bank — ShoreBank Pacific in Ilwaco, Washington.

Editor’s Note: On March 31, 2015, Ecotrust founder and chairman Spencer B. Beebe will receive The National Audubon Society’s Dan W. Lufkin Prize for Environmental Leadership at the annual Audubon Gala Dinner in New York. In celebration of Spencer’s 40 years of work to redefine the environmental movement, we are running weekly excerpts from his 2010 memoir Cache: Creating Natural Economies. These posts represent pivotal points in Spencer’s journey to build economies that restore nature and invest in people. And they are five moments that made Ecotrust.

By Spencer B. Beebe

Paul Benoit is the city manager of Astoria, a small coastal Oregon town at the mouth of the Columbia River with a long and proud history. Astoria was the first white settlement west of the Mississippi, a fur trading post established in 1811 by John Jacob Astor of New York. It was to be Astor’s stepping stone to China and global dominance of the fur trade. Lewis and Clark arrived here on a stormy day in November 1805, and spent a rainy winter at nearby Fort Clatsop.

a man in a red fleece stands in front of a reflective pond

There was one part of Astoria that did not make Paul Benoit proud. On the east end of town, on the banks of the mighty river, was Oregon’s worst brownfield site. Seventeen acres of greasy, dead pond — the last remains of a bankrupt plywood mill, the final stage of more than 100 years of sawing the huge old-growth logs of the surrounding forest, a vestige of a logging boom in an industrial age.

In 1998, Oregon’s Department of Environmental Quality offered the city matching funding to clean up the site, an estimated total of $1.5 million. Paul thought that the cleanup and redevelopment of the old Mill Pond was a critical part of turning the historic town around rather than have it go the way of so many former coastal boomtowns, just another roadside attraction of cheap hotels, fast food, decaying streets, car bodies over the bank, and disenchanted youth doing everything possible to get out of town. However, Astoria didn’t have $750,000 to match the state’s offer to restore the Mill Pond.

They went to the local community bank, the Bank of Astoria. The local bankers were not impressed: cleaning up a superfund site? Not on your life! Paul was getting desperate when he ran into John Berdes at ShoreBank Enterprise Pacific across the bridge in Ilwaco, Washington, who said he might be able to help. What is ShoreBank Enterprise Pacific? How do they, in Ecotrust’s now-familiar parlance, “release the energies of local residents”? That’s actually a pretty good story.

It starts early in 1991 in Edmonton, Alberta, where I was giving a paper at the North American Wildlife Conference on what we called “conservation-based development in the rain forests of home.” Alana Probst, Ecotrust’s director of economic development (her business card actually said “Queen of EcoDevo”) had created the Oregon Marketplace, which strove to build Oregon businesses through “import substitution,” the process of doing better at home what previously had been done elsewhere. Alana became friends with Jane Jacobs, who said that ShoreBank — the country’s leading community development financial institution, headquartered in Chicago — was the only bank she liked. I knew something about conserving the environment and was committed to Native American and First Nation communities, but knew little or nothing about economic development. ShoreBank committed itself to “social equity,” creating opportunities for low- and moderate-income residents of what they called “disinvested communities.”

From a hotel room in Edmonton, I picked up the phone and called Mary Houghton, president and one of the four founders of ShoreBank. I mentioned Alana and Jane Jacobs, so she took the call. I told her we had started an organization devoted to the “triple bottom line,” the improvement of environmental, economic, and social equity in the coastal temperate rain forest bioregion from Alaska to California. ShoreBank had the “equity” and “economy,” I had the “environment” and “equity.” “Maybe we should work together and pursue the three Es: equity, economy, and environment? Then we’d have a whole-systems approach.” I invited her to join the Ecotrust board and, only the Creator knows why, she accepted right then and there.

Then it got more interesting.

One of my last hurrahs at Conservation International (CI) was taking some Rockefeller Foundation trustees around Mexico to explore funding opportunities. In the end, I apparently wasn’t very persuasive, and they decided not to do conservation in Mexico. Perhaps they were feeling sympathetic after having taken so much time, so they gave CI $75,000 to do a series of workshops to explore large-scale ecosystem conservation and development throughout the Americas.

It may not have been precisely what the Rockefeller Foundation had in mind, but this turned out to be four week-long float trips down Idaho’s Middle Fork of the Salmon River in the Frank Church Wilderness Area, trips built around different themes: science, economic development, policy, and the nature of complex adaptive systems.

The venue was so appealing that we attracted top people from Brazil, Mexico, the United States, and Canada. Over breakfast, lunch, and dinner around a campfire on the beach, beside the pristine green water of the Middle Fork, deep in a spectacular steep canyon under old-growth ponderosa pine, each participant gave a talk to the group. Then we floated, walked, kayaked, hot-springed, bird-watched, and fly-fished our way down the river, each time mixing the 12 to 15 guests. A writer recorded and shared the evolving discourse, and as the fast river slowed, the canyon opened up in drier country and everyone began to relax and settle in with one another. A synthesis gradually emerged into what was eventually published as a four-part annual series called “The Middle Fork Conference.”

So, when the economic development–themed raft trip came around, I invited Mary Houghton, who by that time was on the Ecotrust board. Rafting down wild rivers is not the first thing you think of when you meet Mary Houghton in ShoreBank’s headquarters on the south side of Chicago. But this rafting trip was a board responsibility, and Mary is game for anything different, especially new ideas with interesting people. We were sitting around a campfire on about day three in that summer of 1993, deep into discussing how we might unleash the unlimited creativity and energy of local residents to create economic opportunity and fuel ecosystem restoration. Mary looked up at one point and said, “Let’s start a bank!” So we did.

Not right there around the campfire, of course. It would take several years of planning, almost monthly two-day meetings between the senior staff of Ecotrust and ShoreBank, and some excruciatingly difficult fundraising from coast to coast. But after all this, we created a business plan and offered documents for “ShoreBank Pacific Corporation, the First Environmental Bank,” a wholly owned subsidiary bank holding company of the parent ShoreBank in Chicago. Under the ShoreBank Pacific holding company, we detailed three subsidiary affiliates: ShoreBank Pacific, a regulated, de novo commercial bank designed to make loans to small- and medium-sized businesses in both urban and rural markets in the coastal Pacific Northwest; ShoreBank Enterprise Pacific, a nonprofit “community development financial institution” designed to support small and emerging businesses and organizations that didn’t have the credit history or collateral to allow them to go to existing banks; and, finally, a real estate company designed to support green development with equity and debt.

an aerial view of a town located along the coast
The fishing town of Ilwaco, Washington. The location of the first branch of ShoreBank Pacific.

And, of course, our plan was to headquarter all this in Ilwaco, Washington, an all-but-abandoned fishing town in Washington State, on the north banks of the mouth of the Columbia River, population 800 — and declining. I say “of course” because this was entirely consistent with both ShoreBank and Ecotrust policy to always do the most difficult thing in the most challenging way imaginable.

One immediate challenge was the fact that what we wanted to do — start a de novo bank in the State of Washington — was illegal without a charter, and we didn’t have one. In the end, we somehow managed to persuade U.S. Bank to donate an unused charter — an unheard-of gesture on the part of one bank to a potential competitor. U.S. Bank has been a great partner ever since.

But becoming legal was far from our only challenge. When I went around to explain our plans to prospective funders and investors, I drew a record number of unabashed, disbelieving, blank stares. Fortunately, Mary’s colleague Ron Grzywinski, the chairman of ShoreBank, usually traveled with me, dressed very much like a banker, and with ShoreBank’s history and reputation, we eventually won the day. Ron and I raised almost $10 million in capital and several million in operating support. For the nonprofit we could raise both loan capital and operating support from charitable donations. For bank capital we offered common equity voting and/or nonvoting shares in ShoreBank Corporation, the parent, and stipulated that capital would be 100 percent downstreamed as initial capital to ShoreBank Pacific. The beauty of bank holding companies, Ron would explain, is a largely unrecognized clause of the banking act that allows them to use their resources for the well-being of the residents of the communities in which they work. It was a broad interpretation rarely used by other bankers. So, in effect, the holding company structure and board orchestrated the activities of a potentially diverse array of subsidiary commercial and public service entities toward common purpose while raising money from diverse sources: private equity capital, FDIC-insured deposits, governmental and charitable grants, and earned income and profits. Ron’s speech always revolved around the establishment of a “permanent development institution,” one that grew and was self-funded.

Several foundations were persuaded that they should make grants to Ecotrust so it could invest in ShoreBank, rather than investing directly themselves. Thus Ecotrust ended up with an investment of $3.5 million in ShoreBank, almost five percent of the voting stock at the time, as well as having board positions and an ongoing partnership.

Leverage is an important idea and banks are particularly good at it, sometimes too good at it, despite enormous regulatory constraints. Banks can raise deposits in proportion to capital at a ratio of roughly 10:1. So $10 million in capital becomes $100 million in deposits, which in turn are lent at a loan-deposit ratio of as much as 8:1. So $10 million becomes $80 million in loans, and of course the spread between the cost of deposits and the interest rate on loans generates the bank’s earnings and its ability to grow. It’s a sort of green alchemy that is hard to reproduce in a nonprofit environmental structure.

the outside of a new building with ShoreBank Pacific title over the doors

In 1995, we started the Northwest work with ShoreBank Enterprise Pacific, the nonprofit. It seemed like the lowest risk but sharpest edge of the plough. Since we weren’t putting insured deposits at risk, we could experiment and make all the dumb loans we wanted as far as the regulators were concerned. Ecotrust incorporated the nonprofit, provided start-up financial and administrative support as well as grant money, and converted an old fish cannery on the Ilwaco harbor front into an office. On day one, we cleaned some remaining sturgeon off the floor and started the restoration. I think Bob the Sturgeon’s stuffed remains still decorate the wall.

At the time, ShoreBank Enterprise had a total revolving loan fund of $2.5 million, hard-won capital that we raised crisscrossing the country for three years. Our policy was not to loan more than 10 percent of the fund in any single transaction. So when Paul Benoit came asking for $750,000 for a brownfield redevelopment, I was skeptical; it seemed like a great way to dig a giant financial hole right from the get-go. But my colleagues were persuasive. We built this institution to take calculated risks, they argued, listing the reasons we should make the loan. We invest in entrepreneurs and local leaders with a long-term commitment to place. Astoria is the largest community in our service area and it’s facing a critical turning point. Many people, including prominent politicians, will let any fast, cheap development come to town on the promise of a few jobs, but a growing minority of citizens see a different future and have a thoughtful, carefully orchestrated plan to reconnect the waterfront with the downtown and Victorian neighborhoods on the surrounding hill, a narrow gauge railroad for public transportation, new sidewalks, a maritime museum, and a renovated Liberty Theater. These are the very people we need to help, and this is the moment in time when we need to step up and do it. Before they were through I was beginning to feel like the Bob Jenkins of the group, and I didn’t like it. But in the end we blew off the loan policy, something a nonprofit is uniquely able to do, and made a commitment to Paul Benoit.

He delivered in more ways than we could have imagined. The state DEQ helped clean up the Astoria Mill Pond, the city sent out a request for redevelopment proposals, and Art Demuro of Venerable Properties in Portland won the bid — $1.3 million for 17 acres on the banks of the Columbia River in a beautiful, small historic town. With Enterprise’s commitment, ShoreBank Pacific, our commercial bank, followed, and ultimately the Bank of Astoria joined in as well. The U.S. Environmental Protection Agency recognized the project as a leading national example of brownfield redevelopment with its Phoenix Award.

Where there was once oily water leaking into the Columbia, a lifeless, weedy pond surrounded by rusting metal, hydrocarbon-soaked soil, an industrial eyesore and stain on the city’s reputation, there is now a clean, clear pond replanted with native vegetation, grebes, ducks, and loons, and three dozen smart, affordable wood homes appropriate to the community. it was a great example of public-private, for-profit/nonprofit collaboration in which local, state, and federal governments, environmentalists, planners, developers, and social activists worked together to create something real and meaningful at a very local level, but in a way that had national, perhaps global, application. Paul Benoit’s tenacity and leadership helped turn the whole city around and point it to a hopeful future.