Finance & Investment Circular Economy

Welcome to the Era of Regenerative Finance

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.

Brand Provided | By Jasper van Brakel | Published 3 years ago | About a 6 minute read

Image: RF._.studio/Pexels

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

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.

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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