Report
Our Theory of Change
Introduction
What is a “Theory of Change”? It’s more than a mission statement or a “why we’re here”; it’s a profound and comprehensive statement of what we want to change in the world, and how we intend to do it.
It’s our conviction that by using the tools and model of a bank, we can help build more resilient, sustainable, and economically viable local food ecosystems – a key part of creating a more sustainable future.
What follows is an attempt to build a fuller articulation of that conviction from the ground up - addressing questions of focus (on local food ecosystems), form (as a bank), and function (through our impact strategy) along the way - and clarifying what our unique contributions are to the ecosystems we serve.
Total greenhouse gas (GhG) emissions by sector, from EPA.gov; as of 2022.
Background
Before Walden Mutual was a bank, it was an unformed desire to participate in the creation of a more sustainable future. Businesses drive huge impacts (both of the beneficial and destructive natures) on our environment, with industries that deal in natural resources leading the way (at least in terms of greenhouse gas emissions):
While other industries like transportation, electric power, and “industry” lead GhG emissions, the overwhelming majority of those industries’ footprints trace back to fossil fuel use (ex. ~60% of electric power is generated by the burning of fossil fuels). Agriculture is distinct amongst those sectors. While fossil fuels are inputs to many agricultural processes (ex. they’re the basis of chemical fertilizers; oil and gas fuels equipment that’s involved in production, processing, and transport; etc.), large scale conventional agriculture (including concentrated animal feeding operations) directly generates a large amount of GhG (specifically methane) as a byproduct. On the other hand, agriculture also holds tremendous potential for ecological benefit through carbon sequestration. Careful land management can ultimately reduce net GhG emissions.
Agriculture (and food production generally) is also distinct from transportation and other carbon emission-intensive industries in its cultural primacy. Food is a connective tissue that runs across cultures, communities, and families – to the point that food can often play a role in individual conceptions of identity [1]. If you were starting a company to help shape a more sustainable future, what could be more impactful than affecting change in our food ecosystem?
[1] https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=d18391873c365730a1e31e1b0583971396e6083d
Our Mission
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We enable anyone to make positive and lasting change in our local food ecosystem.
Structure
Importantly, our mission comes first – and any discussion of our form follows. We considered a range of structures, each providing different potential benefits and drawbacks in achieving our mission, before choosing our form as a bank.
Mission-driven food brand or producer
Food operators can directly intervene to affect change, but their scope of impact is limited to their own operations and category, and their markets are extremely competitive.
NON-PROFIT
Non-profits benefit from an ideological purity (no grappling with the drive for profit) and can work across the entire ecosystem, but reliance on non-recurring sources of capital (like fundraising and grants) can make scaling beyond a specific threshold difficult.
Fund
Investment funds benefit from a lot less regulatory scrutiny than we manage, but their cost of capital can also mitigate potential impact. Investors in a fund expect a specific return and have a particular appetite for scale, versus deposit interest rates at an FDIC-insured bank are generally lower and allow for natural scale.
Bank
Advantages
- ANYone can participate with $1 in a bank account.
- Lending provides opportunity to positively impact large number of organizations of many scopes and sizes in a meaningful way.
- Relatively small number of compelling options for consumers looking for banks that align with their values and offer table stakes level of customer experience...not to mention meet consumer desire to connect with mission-aligned businesses (developing a functional ecosystem along the way).
- FDIC-insured deposits provide differentiated advantage on cost of capital (relative to other non-bank food/ag lenders).
- Business model lends itself to scaling – with larger lending portfolios yielding more impact, and the opportunity to deploy a multiple of the capital available in other forms.
- Mutual structure specifically enables 1) long-term incentives for investors as counterweight to pressure to generate short-term returns, and 2) democratic, cooperative participation by wider range of stakeholders.
Disadvantages
- Depositor money means limitations in lending to the “neediest” cases – our risk profile is very different than that of a non-profit.
- Intense regulatory obligations.
- Banking industry is predicated on minimizing risk; assumes mis-behavior and profit-over-everything intent (such that banks with a mission orientation have to deal with regulations and consumer expectations shaped by a track record of abuse).
Our Tools
Our form as a state-chartered FDIC-insured bank is a key part of our design. We view our three primary tools as:
- Capital and financial services, critical because of their capacity to drive change at the systemic level.
- Our mutual (or cooperative) governance model, which holds us accountable to our long-term commitments – and provides credibility to our claims.
- Our role as a connective bridge between the ecosystem’s many participants...to develop a more vibrant, resilient and sustainable food system.
Impact Through Lending
While we take seriously our opportunities to positively impact communities through our own internal operations (including our hiring and internal culture) and our base of individual depositors, our largest opportunity to realize our mission comes through our lending – deploying our capital to businesses and organizations in and around the local food ecosystem.
We have three discrete objectives within lending which shape our impact:
Qualifying Borrowers
We screen the businesses and organizations who borrow from us to ensure that they each meet a minimum threshold of mission-alignment.
Tracking Progress over time
We use our Walden Impact Assessment (WIA) to benchmark each borrowers’ placement in their social and environmental impact journey at the time of loan closing – and then we track progress over time by readministering the WIA periodically. The WIA also often starts conversations about opportunities for improvement, as borrowers become aware of new ideas and best practices.
Sharing best practices
We view our marketing platform as a pedestal on which we place borrowers whose success and excellence deserves sharing. Whether through storytelling (on our blog or social media for example) or events (where borrowers share best practices with each other), we aspire to elevate leading examples of social and environmental responsibility.
Theory of Change
Our conviction is that by using the tools and model of a bank (which, importantly, allows anyone to participate), we can help build more resilient, sustainable, and economically viable local food ecosystems – a key part of creating a more sustainable future.
Note our use of the word “ecosystem.” Food systems do not operate in isolation. They require the support of service providers, equipment manufacturers, non-profits and many other community-focused, impact-driven organizations. For that reason, we intentionally draw a wide circle around the types of organizations that are aligned with our mission, inclusive of both industry and geography. While our focus remains on New England and New York, food ecosystems within our region undoubtedly benefit from thriving food ecosystems elsewhere through the general reshaping of market expectations (towards more local, sustainable options) and the sharing of best practices and learnings.
Our theory of change is also concerned with “additionality.” Put simply - what would the world look like if we were not here? If the answer is “about the same,” how much change can we claim to be driving?
Our unique contributions are:
We lend to people and places where others don’t or won’t, and we lower the cost of capital for our community’s most impactful organizations.
By being focused on a few verticals, we are developing expertise that will allow us to make differentiated underwriting decisions. That enables us to lend to impactful businesses that may otherwise not have access to credit (hence our publicly published metric of number of loans where we were the only offer on the table). By focusing on our natural resource ecosystem – food, energy, and other related industries – we maximize our impact on sustainability. Intensive users of natural resources are the places where behavioral change is most impactful. Even where there are competitive offers, by offering them credit, we lower their overall cost of capital and further their growth.
We are expanding the pool of stakeholder-oriented businesses.
Our Impact Assessment is new territory for many businesses – especially small ones. Often, they have not considered many of the topics: Do they pay living wages? Are they using energy efficient infrastructure? Do they have a non-financial mission at the heart of their organization? Our Impact Assessment allows us the opportunity to measure the progress of these businesses against a constant and standardized set of environmental and social metrics, driving consistency and accountability. Driving awareness - which we are in a unique position to do - opens conversations with organizations about the next step in their social and environmental journey.
We measure (and will ultimately seek to incentivize) social and environmental progress.
Over time, we expect to see the composite impact score of our borrowing portfolio improve. Even if we were not the driver of those improvements, this can still be very impactful (for all the reasons above). Over the longer term, we will offer best practices and toolkits that equip our borrowers to make forward progress. We currently offer financial support for those interested in B Corp and other third-party certifications. As our balance sheet grows, we have the opportunity to offer differentiated loan rates or discounted fees based on documented improvements.