Impact Investing Forum
London. Nov 18-19. (Virtual)
RSF Is Leading The Way In Moving From Impact Investing To Regenerative Finance ForbesRSF Is Leading The Way In Moving From Impact Investing To Regenerative Finance ForbesRSF Is Leading The Way In Moving From Impact Investing To Regenerative Finance Forbes
RSF Social Finance’s Racial Justice Collaborative recently funded the reactivation of a historic … [+] Black arts and business district in Oakland, centered around Esther’s Orbit Room, a legendary former blues and jazz club.
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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. According to a report by the IFC, $2.3 trillion were invested for impact in 2020, an impressive sum, yet this is only around 2% of total assets invested globally in 2020.
A pioneering firm in the impact investing space 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. RSF currently has over $230 million under management.
More recently, RSF has been pioneering in a new investment area, “regenerative finance”. 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. He told me that “In short, regenerative finance is a tool to support change makers who are moving our economy from being extractive to being regenerative.”
Please read more about regenerative finance and RSF’s work in this area in the interview below:
Christopher Marquis: You recently wrote that regenerative finance is emerging as an essential tool for solving systemic problems. Can you describe what regenerative finance is, simply? How is it different from finance as we know it? And why do you and RSF Social Finance think its time has come?
Jasper van Brakel, CEO of RSF
RSF Social Finance
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Jasper van Brakel: Regenerative finance describes the use of various forms of capital to create healthy and equitable social and environmental systems.
The difference between this regenerative approach and traditional finance is that success in traditional, conventional finance is defined by the financial return on capital; positive social or environmental impacts, if they occur, are a by-product. 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.
The time for regenerative finance is now. There is a role for the capital markets to make restoration, regeneration and healing possible at scale. We can no longer hide from systemic racism, growing inequality or the climate emergency that impacts everyone—although not everyone equally. Regenerative finance provides a third path that neither counts on government to solve all problems nor expects free-market capitalism to suddenly include multiple stakeholders in corporate governance and refocus on the long-term. A fundamental shift is needed, all the ingredients for the solutions are here, and we have this decade to do it.
Marquis: Can you provide an example of a systemic problem that regenerative finance is addressing, and how it is doing so?
van Brakel: Racial inequity is a systemic problem that many regenerative finance practitioners are working to address. BIPOC (Black, Indigenous and people of color) entrepreneurs face significantly higher hurdles to obtaining capital than their white counterparts, and they are routinely underfunded. Regenerative finance approaches fill that capital gap, and they do it in ways that address the underlying structural barriers.
I admire the work the Boston Impact Initiative Fund is doing in this area. When choosing investments, the fund uses a race-based lens that considers the enterprise’s ownership, opportunities it provides, and the degree of worker participation in key decisions. And then it uses integrated capital financing, which could include loans, equity investments, direct public offerings, and other tools, to tailor its support for the enterprise.
Candide Group’s Olamina Fund is another good example. It provides capital to community development financial institutions and other impact-focused lenders that support high-quality jobs and self-determination for low-income communities. At least 80% of these community borrowers are led by people of color and women, and they participate in Olamina’s governance and solution design.
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. We’ve engaged external advisers with community wealth building and racial justice expertise to play a central role in funding decisions, which helps ensure accountability to the communities we’re trying to serve.
Marquis: Tell me more about mission-first business structures and how they relate to regenerative finance. What companies are adopting these structures?
van Brakel: Mission-first structures are ways to implement stakeholder control and ensure that companies can create the outcomes that regenerative finance seeks. These structures share three foundational principles: Profits serve purpose—they are reinvested in the business, shared with stakeholders, or donated. Control resides with stakeholders who are actively engaged in or connected to the business, which can’t be purchased or inherited. And governance and ownership are separate—outside investors don’t have voting or controlling shares.
This is a significant step beyond benefit corporations because it fully protects the mission and tilts the power dynamic. Shareholders are still an important stakeholder, just not the only one that can make decisions. If the decision makers in a company answer to the mission and to all stakeholders, they have different incentives and materially different results from decision makers who answer to investors only.
There are large, multinational companies like Bosch that adopted this model many decades ago; there are start-ups that are baking a mission-first structure into their DNA from day one; and there is everything in between. From tech to food, from climate to land conservation—there is a lot of innovation in this space.
Purpose Foundation and Alternative Ownership Advisors are great resources to go to for more information about the specific structures and how they work.
Marquis: Can you talk about a few other examples of regenerative finance?
van Brakel: There’s a new five-year regenerative finance initiative called Funders for Regenerative Agriculture that is collaborating with people who focus on getting all the elements of the farm and food system to work in harmony and continually replenish natural resources. Others include Grounded Capital Partners, which also funds regenerative food system enterprises, and Beneficial State Bank. They’re all helping to solve systemic problems with a regenerative mindset and toolset.
RSF’s Social Investment Fund, which is a debt fund 100% dedicated to social enterprises, is another example. 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. There’s also a community governance element: we bring groups of investors and borrowers together quarterly to discuss interest rates and advise us on adjustments.
Marquis: You said we can’t fix broken systems with our broken financial system. Why not? What makes the current system so broken? Do you see a role for everyday investors in terms of addressing this?
van Brakel: That’s right. 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.
What your dollars do when you’re asleep matters, no matter the amount. We like to think about impact investing and regenerative finance as something investment funds, banks and other financial institutions could do. And they should! Everyday investors, everyone with a bank account, a 401(k) or any kind of financial assets, has a choice: what do I want my money to make possible? Who is making those decisions on my behalf? What would one small change look like?