RSF Is Main The Approach In Shifting From Affect Investing To Regenerative Finance

RSF Social Finance’s Racial Justice Collaborative recently funded the reactivation of a historic … [+] Black arts and business district in Oakland that revolves around Esther’s Orbit Room, a legendary former blues and jazz club.

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In the last decade and a half, the idea of ​​“impact investing” – in which the funds are used not only to achieve a financial return, but also to achieve social and environmental impact – has become increasingly popular in investment and social circles. According to an IFC report, $ 2.3 trillion was invested in Impact in 2020, an impressive amount, but that’s only about 2% of total assets invested globally in 2020.

RSF Social Finance is a pioneer in impact investing. While the Rockefeller Foundation first coined the term “impact investing” in 2007, RSF, based in San Francisco, has been working according to the underlying principles of the field since it was founded in 1984. RSF currently has over $ 230 million under management.

More recently, RSF has pioneered a new area of ​​investment, “regenerative finance”. As part of my research on purpose-driven businesses, I interviewed Jasper van Brakel, CEO of RSF, to learn more about this new way of investing and why it’s important to society and the planet. He told me: “In short, regenerative finance is an instrument to support change makers who are transforming our economy from an extractive to a regenerative economy.”

Please read more about regenerative finance and RSF’s work in this area in the following interview:

Christopher Marquis: You recently wrote that renewable finance is emerging as an essential instrument for solving systemic problems. Can you just describe what regenerative finance is? How is it different from finance as we know it? And why do you and RSF Social Finance think the time has come?

Jasper van Brakel, CEO of RSF

RSF social finance

Jasper van Brakel: Regenerative finance describes the use of various forms of capital to create healthy and just social and environmental systems.

The difference between this regenerative approach and traditional financing is that success in traditional, conventional financing is defined by the financial return on investment; positive social or environmental impacts, when they occur, are a by-product. With regenerative finance, the goal is to enable positive change with the financial return as a by-product. Regenerative finance sees money as a means, not an end. It’s about circulation, not accumulation.

The time for regenerative finance is now. The task of the capital markets is to enable restoration, regeneration and healing on a large scale. We can no longer hide from systemic racism, growing inequality or the climate emergency that affects everyone – if not all equally. Regenerative finance offers a third way that neither relies on the state to solve all problems nor expects free market capitalism to suddenly involve several interest groups in corporate management and realign itself in the long term. A fundamental change is required, all the ingredients for the solutions are in place, and we have this decade to do it.

Marquis: Can you give an example of a systemic problem affecting regenerative finance and how this is done?

van Brakel: Racial inequality is a systemic problem that many regenerative finance practitioners are working on. BIPOC entrepreneurs (Black, Indigenous and People of Color) face significantly higher hurdles when it comes to raising capital than their white colleagues and are regularly underfunded. Renewable funding approaches fill this capital gap in a way that addresses underlying structural barriers.

I admire the work of the Boston Impact Initiative Fund in this area. In selecting investments, the Fund uses a racial view that takes into account the ownership structure of the company, the opportunities it offers and the level of employee involvement in key decisions. And then it uses integrated equity financing, which could include loans, equity investments, direct public offers, and other tools, to tailor its support for the company.

Candide Group’s Olmina Fund is another good example. It provides capital to community development financial institutions and other high-impact lenders who support quality jobs and empowerment for low-income communities. At least 80% of these community borrowers are led by black people and women and participate in Olamina’s governance and solution design.

As the RSF, we began targeted work to combat inequality with the Racial Justice Collaborative, which uses philanthropic money to support U.S.-based social enterprises with BIPOC owners and executives. We have hired outside consultants with expertise in community wealth building and racial equity to play a central role in funding decisions, helping to ensure accountability to the communities we seek to serve.

Marquis: Tell me more about mission-first business structures and how they relate to regenerative finance. Which companies are adopting these structures?

van Brakel: Mission-first structures are ways to implement stakeholder control and ensure that companies can achieve the results that regenerative finance aspires to. These structures share three basic principles: Profits serve a purpose – they are reinvested in the company, shared with stakeholders, or donated. Control rests with stakeholders who are actively involved in or connected to the business, who cannot be bought or inherited. And governance and ownership are separate – outside investors have no voting or controlling interests.

This is a significant step beyond the benefit companies as it completely protects the mission and upsets the power dynamic. Shareholders are still an important player, just not the only one who can make decisions. When the decision-makers in a company do justice to the mission and all stakeholders, they have different incentives and significantly different results than decision-makers who only respond to investors.

There are large, multinational companies like Bosch that adopted this model decades ago; there are start-ups that bake a mission-first structure into their DNA from day one; and there is everything in between. From technology to food, from climate to land protection – there are many innovations in this area.

Purpose Foundation and Alternative Ownership Advisors are great resources to learn more about the specific structures and how they work.

Marquis: Can you give a few other examples of regenerative finance?

van Brakel: There’s a new five-year regenerative funding initiative called Funders for Regenerative Agriculture that works with people focused on balancing all elements of the agri-food system and continually replenishing natural resources. Others include Grounded Capital Partners, which also funds regenerative food systems companies, and the Beneficial State Bank. They all help to solve systemic problems with a regenerative mindset and a toolkit.

Another example is RSF’s Social Investment Fund, a debt fund dedicated 100% to social enterprise. Investors in the fund receive a nominal return but know their money will be used out there 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 is also an element of community governance: we bring groups of investors and borrowers together on a quarterly basis to discuss interest rates and advise us on adjustments.

Marquis: They said we can’t fix broken systems with our broken financial system. Why not? What is it that breaks the current system so badly? Do you see a role for everyday investors in addressing this?

van Brakel: Correctly. The incentives in the current financial system are geared towards maximizing profits, neglecting or ignoring the negative effects of doing business, and seeing money as a goal rather than a tool.

No matter what the amount, what your dollars do when you sleep is important. We like to think of impact investing and regenerative finance as something mutual funds, banks, and other financial institutions could do. And they should! Everyday investor, anyone with a bank account, 401 (k) or other financial asset, has a choice: What should my money make possible? Who makes these decisions on my behalf? What would a small change look like?