While few funders have fully realized the regenerative finance vision, a growing community of financial activists is applying its core practices in initiatives
that show how we can use capital as a flexible, purpose-driven tool to create healthy and equitable social and environmental systems.
Our complex, systemic problems are proving resistant to simple solutions, and
each one has its own web of complexities to unwind. One thing they all have in
common, though, is that you can’t fix a broken [name any system] with a broken
finance system. That’s why regenerative
finance
— a concept that’s been percolating at the edges of impact investing and
sustainable business since at least 2015, when John
Fullerton laid out the
principles of regenerative
economics — is
emerging as an essential strategy.
Simply put, regenerative finance uses money as a tool to solve systemic problems
and regenerate communities and natural environments. Its goal is to heal and
create shared value. Profits are not the end, but rather a means to further
progress. In regenerative finance, circulation replaces accumulation.
Conventional finance approaches are too myopic to fully address the systemic
failures we’re facing. The growing adoption of environmental, social and
governance (ESG) factors in investing is a positive trend; but it’s mostly about
reducing negative impacts. Even investment strategies aimed at achieving
positive net impact tend to focus on a narrow set of targets, and they often
neglect to consider how outcomes are created and who benefits. Most banking and
lending practices still ignore social and environmental impacts. In
philanthropy, while grantmaking is dedicated to solving problems, the typical
process maintains skewed power relationships in ways that block access to
innovative ideas and reinforce social
disparities.
And foundations often invest the vast majority of their assets in ways that
undermine their mission.
Regenerative finance meets this moment. It integrates various types of capital —
investments, loans, grants and more — to give social enterprises, community-led
projects, and restorative cultural and environmental initiatives financing
that’s tailored to maximize their success. It takes a holistic approach,
accounting for interlocking causes and effects. And it deploys capital more
equitably by eliminating repayment terms and collateral requirements that
extract resources from communities — revising exclusionary credit standards,
involving core stakeholders in decision-making, and otherwise rebalancing the
scales of economic
control.
Finally, regenerative finance transcends the transactional: It’s relationship
based — an attribute that may sound impractical but actually opens the door to
all of its other qualities.
Regenerative finance in action: Food systems, racial justice and mission-first business structures
How to define and build a regenerative business
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Regenerative finance can accelerate solutions to any systemic problem, but some
of the most powerful real-world examples are focused on regenerative
agriculture,
racial
justice and
restructuring businesses to make them more accountable and to distribute their
benefits more equitably.
While few funders are fully realizing the regenerative finance vision, a growing
community of financial activists is applying its core practices in initiatives
that show how we can use capital as a flexible, purpose-driven tool to create
healthy and equitable social and environmental systems.
Regenerative agriculture
Regenerative agriculture is an apt analogy for regenerative finance: It aims to
get all the elements of the farm and food system working in harmony and
continually replenishing natural resources and human health. Rather than just,
say, reducing water usage, eliminating pesticides or improving soil health, it
incorporates all of those strategies and more. It’s also a field where
regenerative finance is particularly needed. In food systems, high impact and
high returns don’t
mesh
— this is a capital-intensive sector with intense price pressures and labor
conditions desperately in need of improvement. It requires philanthropic, public
and private funding to realize its promise.
A new, five-year regenerative finance initiative called Funders for
Regenerative Agriculture seeks to address these
challenges by collaborating on systemic solutions that put people who steward
the land first. Members commit to taking on more risk, commensurate with the
urgency of the problems we face, and to watch for and avoid the negative impacts
that can flow from even the best-intentioned investments.
RSF Social Finance funds regenerative
agriculture through our Food and Agriculture and Biodynamics capital
collaboratives — which provide grants, loan guarantees and technical assistance
to create resilient infrastructure; develop agricultural practices that support
healthy carbon cycles; strengthen fair trade supply
chains
and provide equitable access to farmland. These funds prioritize entrepreneurs
and communities that existing food and financial systems have marginalized.
Racial justice
Across the spectrum of funding, BIPOC (Black, Indigenous and people of color)
entrepreneurs are routinely overlooked or underfunded by conventional investors,
venture capital firms, and commercial banks. Founders of color also face
significantly higher hurdles in obtaining capital than their white counterparts.
Regenerative finance can redress the ways in which conventional finance creates
and maintains inequality, as well as fund community-driven projects and BIPOC
entrepreneurs.
Candide Group’s Olamina Fund is an
excellent example. It provides lower-cost, flexible capital to community
development financial
institutions
and other impact-focused lenders that support asset-building, high-quality jobs
and self-determination for low-income communities. At least 80 percent of these
community borrowers are led by people of color and women, and they have a
central role in Olamina’s governance and solution design.
The Boston Impact Initiative Fund directly supports
entrepreneurs using a spectrum of integrated capital tools — loans, credit
enhancements, equity investments, royalty finance, direct public offerings,
crowdfunding, grants and more — with a focus on economic justice. When choosing
investments, the fund applies a race-based lens that considers the enterprise’s
ownership, opportunities for meaningful livelihood and advancement, and the
degree of worker participation in allocating resources and setting directions.
RSF recently launched the Racial Justice
Collaborative
— a philanthropic fund that provides diverse forms of capital to US-based social
enterprises with BIPOC owners and leaders. External advisers with community
wealth-building and racial-justice expertise play a central role in funding
decisions, which helps ensure accountability to the communities we’re trying to
serve.
Mission-first business structures
Business has contributed to the problems we face, and it must help solve them.
We need to fundamentally change the incentive structures for business leaders
and investors. That means challenging the primacy of shareholder
profits,
yes — but also rethinking who controls and benefits from businesses. We need
new ownership
models
that are explicitly designed to decouple ownership from governance and create
social, cultural and ecological goods. Regenerative finance is the fuel that
will power them.
Purpose Evergreen Capital is among the
first to take on this role. Conventional growth capital options — private
equity, public offerings, acquisition by a large corporation — typically don’t
align with the goals of mission-first businesses. Purpose employs alternative
financing solutions to buy out early or nonaligned investors and finance
successions so that companies can transition to an alternative ownership
structure that allows them to grow and succeed over the long term, while
prioritizing their mission commitments and serving all stakeholders.
There’s room for many more investors in this space, as the demand for patient
capital deployed to optimize both financial return and impact outstrips supply.
Regenerative finance meets the moment
The common denominator in the regenerative financing structures outlined above
is that they all provide systemic solutions to systemic problems. Systemic
solutions require that we consider not only what gets funded but also who gets
funded and how. Among the shifts necessary are upending status quo dynamics in
the finance sector, involving community stakeholders in decision-making, and
supporting companies and initiatives that address problems holistically.
Regenerative finance seeks to take all that on. This is exciting news for
sustainable, mission-driven businesses, because regenerative finance is fully
invested in their mission of creating long-term value for everyone.
Published Jun 11, 2021 8am EDT / 5am PDT / 1pm BST / 2pm CEST
Jasper van Brakel
President & CEO
RSF Social Finance
Jasper J. van Brakel joined RSF Social Finance as its president and CEO in March 2018. He is convinced that innovative approaches are needed to address the significant social, cultural, and economic challenges of our time, and guides RSF as it builds on its success in transforming the way individuals and organizations work with money.
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