Regenerative finance with a long-term focus for positive impact
Over the last decade and a half, the idea of “impact investing” – where funds are directed to generate not just financial return but also social and environmental impact – has become increasingly popular in investment and social impact circles. A pioneering firm in the impact investing space that I have been following for over 10 years now is RSF Social Finance.
While the Rockefeller Foundation coined the term “impact investing” only as recently as 2007, San Francisco-based RSF has been working according to the field’s underlying principles since its founding in 1984. As part of my research of purpose-driven businesses, I interviewed RSF CEO Jasper van Brakel to learn more about this new type of investment and why it is important for society and the planet.
I especially appreciated his focus on applying regenerative models to finance, which is also a key focus of my forthcoming book, The Profiteers: How Business Privatizes Profits and Socializes Costs.
Read more for some key points from my article on RSF:
More recently RSF has put its focus on “regenerative finance”, which is “the use of various forms of capital to create healthy and equitable social and environmental systems,” according to van Brakel. “In regenerative finance the goal is to make positive change possible, with the financial return as a by-product. Regenerative finance sees money as a means, not as an end. It’s about circulation, not accumulation,” he says.
In particular, regenerative finance provides a solution to the problem of systematic racism in finance industry, where BIPOC (Black, Indigenous and people of color) entrepreneurs often have more difficulty in obtaining capital. “As RSF we’ve begun focused work on addressing inequity with the Racial Justice Collaborative, which uses philanthropic money to support U.S.-based social enterprises with BIPOC owners and leaders,” van Brakel says.
Regenerative finance is bounded with the concept of mission-first business structures, which are popular in the start-up community and have been adopted by large multinational companies like Bosch. “Mission-first structures are ways to implement stakeholder control and ensure that companies can create the outcomes that regenerative finance seeks,” van Brakel says. “It is a significant step beyond benefit corporations because it fully protects the mission and tilts the power dynamic.”
There have been many successful regenerative funds, including Funders for Regenerative Agriculture, Grounded Capital Partners and Beneficial State Bank. “RSF’s Social Investment Fund, which is a debt fund 100% dedicated to social enterprises, is another example,” van Brakel says. “Investors in the fund receive a nominal return but know that their money is out there working to create a better world. The entrepreneurs who have loans with the fund appreciate the fact that their lender and the sources of their capital are aligned with their mission.”
van Brakel believes the key underlying problem is that the financial system is broken. “Because the incentives in the current financial system are set to maximize profits, to discount or ignore negative impacts from business operations, and to see money as a goal rather than as a tool,” he says.
Any investor can participate in the regenerative finance movement. “What your dollars do when you’re asleep matters, no matter the amount,” van Brakel says. “We like to think about impact investing and regenerative finance as something investment funds, banks and other financial institutions could do. And they should!”
Rather than relying on governments or free market capitalism, regenerative finance provides an alternative solution to our problem that refocus on the long-term and includes multiple stakeholders in corporate governance. Reshaping the financial system is certainly not going to be easy, but as van Brakel says, “all the ingredients for the solutions are here, and we have this decade to do it.”