The Very Simple Idea of Regenerative Finance

In Oscar Wilde’s Play, Lady Windemere’s Fan, Wilde is credited with creating the quote “The cynic knows the price of everything and the value of nothing.”

Okay, let’s admit it. Blogging about finance is boring, unimaginative and frankly occupies too much attention in our global dialogue. Yet, money has been and continues to be, the arbiter of most decisions about the direction of our economy, the condition of our environment and the health of our society. I do not think we might ever change the dominance of financial capital in our realities, but perhaps we can accelerate the way we evolve the methods we use to evaluate the use of capital and thereby change the way we value its role in addressing the challenges confronting our lives.

Financial decisions have long been centered around a fixed set of ideas and monetary terminology. Simple concepts of cost, risk, interest and repayment are constants in virtually every financial decision. Financial metrics and accounting tools all seek to document the variables around these four financial concepts and thereby measure the perceived value of a financial decision. Government regulations and laws reinforce these processes and can impose significant fines and other penalties to those whose action might be perceived to have violated acceptable practices in the use of financial capital. As a result, basic financial processes and practices have not changed much in decades. And therein lies a fundamental problem.

The bottom line is that our financial systems are stuck in an endless cycle of extractive deployment and recovery. Institutions that hold and deploy capital do so for a very simple purpose – to make more money from money and then to redeploy the increased financial assets to repeat the same cycle. Ultimately, there may be a beneficiary of this process, as an example, a pension retiree or other participant, but in the standard execution of an investment cycle, very little else is often considered. Is there an impact that results from the spend of currency other than some calculated return on the investment? If so, is it known, tracked, measured? Is it positive or negative? Does the issuing financial entity care?

In fairness, over time there has been an expansion of the ideals, terminology and considerations included by issuers of financial resources. Over the last decade, terms and acronyms like RPI, SRI, responsible investing, ESG, sustainability and impact have gradually grown into the fabric of financial investing, giving capital issuers new pathways and alternatives to explore, and providing them market-accepted frameworks through which to increase capital flows to recipients, thereby providing new avenues for revenue streams back to the issuers. Regardless, all these new financial tools only modestly amend the basic process – deploy capital, extract a return from the recipient, recover the original investment, and then repeat. In fact, when discussed, most of the time these newer financial assessment tools are related back to same basic metrics of investment – return and risk. Do these broader considerations enhance return or lower risk?

This reality dominates every aspect of our current financial systems, a challenge that I will address in future blog postings. 

As I write this, we are still in the middle of a massive global crisis, decades in the making and now punctuated by a world-wide pandemic. The process by which we have grown and expanded humanity’s collective footprint on Earth has led us to a period of unprecedented challenges, with crises permeating almost every aspect of our environmental, social and economic existence, driven by the unbreakable process by which we deploy and recover financial capital. The bottom line is, our current systems got us to this precarious place; now, we need to change the way we manage them to get us through these crises and preserve the hope of a healthier and more equitable future. And given currency’s dominant position I our culture, we need to refocus our beliefs around financial capital.

In this environment, we have the beginnings of long overdue discussions around and promotion of regenerative systems’ thinking, including regenerative finance. Regenerative Finance, at its basic core, should be thought of as a catalyst, a means to an end, perhaps a piece of a very large and complex problem or puzzle, but not as a tool whose primary purpose is to ensure its own growth and survival. Let me provide a simple analogy.

Think of Earth as the ultimate biological lifeform, filled with interconnected systems that mesh to maintain life and to generate those items needed to sustain life long-term – air, food and water. The main catalyst of all these processes derives from the Sun. As the ultimate source of life, it drives the creation (and destruction) of everything. Without it, we do not exist. Too much of it, we do not exist. The Sun has its role in life with its main purposes being the generation and maintenance of life. It is the ultimate source of regeneration.

Now think about human civilization, made up of billions of individual organisms, each derived of its own set of systems and subsystems and in turn, representing a fraction of the systems that make up the Earth as a collective life form. Enter humanity’s creation of money.

One of the interesting things about money as a form of capital is it is the only form that does not produce or consume. In essence money is a medium of exchange that assigns a value on what is produced or discovered by humans and exchanged. Think of the silk trading routes and traditional bartering.

To this day, we hear stories repeatedly about individuals who live and work in a community that they love. They provide value to the community, often in exchange for other community-created commodities. In a farming community, sometimes services are exchanged for food — chicken, eggs, ham, bread and cakes and vegetables, etc. The value of some social services to the community is exchanged for what the communities grows and produces as farmers and ranchers. In this way human and natural capital are valued equally on both sides of the exchange.

As barter was replaced by currency of various forms, currency itself transitioned from the medium of exchange and became the actual tradable asset capital itself, and increasingly outsized part of the commodity exchange. Is this the problem that we need to address to start in rethinking the function of money in our society? In our present environment, neither human or natural capital is valued at the same scale as financial capital. Obtaining money and accelerating the speed at which you can transfer or retain assets has become a dominant part of our economy.

The role of money in our civilization must change as does the way we track and measure its value. Perhaps traditional measurements of investment returns cannot even be a primary focus in the use of financial capital. Money can no longer be solely extractive when utilized for economic growth. For us to reach a regenerative and sustainable future, money will have to primarily become a force for regeneration and the returns on investment must be calculated on the increase value of the impacted community or system, with benefits that permeate the entire community, not just the capital issuer.

The cynical view of money, based on cost, risk and return, must give way to broader vision of value created through regeneration, sustainability and community and systems benefit.