– by Ransu Salovaara, CEO of carbon platform Likvidi
Humanity faces a multitude of threats, many of which are too large and complex for any combination of governments or NGOs to tackle alone. To avoid a world blighted by climate change and environmental degradation, the way capital is used needs to change, and fast.
This is where Regenerative Finance, or ReFi as it’s known, comes in.
ReFi proposes to turn the world of finance on its head, replacing the pursuit of profit with a system that puts environmental and social goals at the forefront.
That’s quite a departure from the current situation where finance focuses on what it does best: using money to make more money. In this way it has created the structures of wealth and power that form the modern world. But it has done so at great cost to the planet and people on it.
It’s clear that the focus on short-term profit at the expense of all else is unsustainable. ReFi shifts the focus, prioritising the long-term health of the system, with wealth creation as a happy by product.
The ReFi sector’s ultimate goal is to drive the global transition to a green economy by routing capital flows towards sustainable initiatives. This can only be achieved by fintech companies, as traditional banks are too dependent on fossil fuels-based companies and projects to adapt and fully embrace sustainability.
Although ESG investing has ballooned in recent years, it alone cannot transform the banking sector. Contradictions are rife. For example, it’s not uncommon for a firm offering green investment funds to simultaneously offer commercial loans for fracking, Arctic drilling, and coal.
New technologies are helping to create new ways of investing and organising. For example, blockchain and Web3 are making ethical outcomes ever more attainable on a larger scale.
Within the next ten years, pretty much all the financial sectors will be somewhat sustainable, with all investors having some ESG aspects on their mandates. It’s predicted that all stocks and bonds will soon have an ESG reporting mandate that will enable investors to have access to a greater knowledge pool that they can use to support their investment decision making.
Instead of prioritising short-term profits for shareholders, ReFi is focussed on longer term gains and survival of the system. It aims to help slow climate change by funding carbon mitigation and sequestration; restore natural ecosystems by cultivating biological diversity; and institute social justice.
ReFi and Fintech, where tech-driven finance departed from the traditional mainframe banking IT structure, enable positive change that wouldn’t be possible when relying solely on traditional banks.
Fintech can and is playing an important role in ReFi. Often, investment needed to launch carbon credit projects is raised by fintech solutions – even if it is a basic crowdfunding platform. Revenue made from the sale of carbon credits should be given to forest owners and regenerative farmers as quickly and directly as possible.
ReFi solutions are now being put into practice across multiple sectors. An important example is that of agriculture, or Regenerative Agriculture. The goal of RegenAgri is to rehabilitate and enhance the whole farm ecosystem, improving the resources it uses rather than depleting them. ReFi can then offer sustainable finance to support those activities.
Farming is capital-intensive with intense price pressures, so it’s difficult to make the case for investment by focusing on short-term profitability alone, and that’s why ReFi is so important. By putting the mission of improving the overall environment before financial profits, investment in long-term improvement of agricultural methods becomes attractive.
Another example of the interplay between ReFi and RegenAgri comes from Danish firm Agreena. It incentivises farmers to improve the health of their soils by providing a platform that allows them to earn money by selling carbon credits when they capture carbon in their soils with improved farming methods.
But Regenerative Finance isn’t just about new technologies, it’s about new business structures too. Replacing the traditional “profit-first” mantra with a “mission-first” ethos is an integral aim of ReFi. How is this achieved in practice?
Some, like Purpose Evergreen Capital, use alternative financing to buy out nonaligned or early investors and bankroll successions, allowing companies to move to alternative structures of ownership which let them prioritise purpose before profit.
Then there are the carbon markets. The Voluntary Carbon Market stands to be greatly improved through ReFi. Issues like double counting of credits, low cost of offsets, low liquidity, and a difficult-to-access market are being addressed by companies like Likvidi, which are putting carbon credits ‘on-chain’.
ReFi will bring sustainable products, including carbon credits and project investing, to the fintech sector. This will democratise investing in a similar way that eToro and Robinhood have done for the stock market.
Technology is enabling more entrepreneurs to enter the market and create positive outcomes than ever before. As we move into an uncertain future, the democratising power of Web3 offers up hope that ReFi may enable the climate heroes of tomorrow, today.
