Regenerative Finance (ReFi) and Reaching Net Zero

Earthbanc is passionate about all things carbon offsetting. Catch up on our previous Medium blogs to find out more. But it doesn’t stop there. Carbon offsetting is just one part of a much larger picture when it comes to reaching net zero. Regenerative Finance (ReFi) represents an economic evolution in both mindset and technology that can enable the rapid scaling of climate action required. To achieve our 2030 target of halving current emissions the State of Climate Action 2021 report calls for a “near doubling of the pace of action”. It states that $5 trillion in climate finance is needed annually to reach our 2030 emissions targets¹.

ReFi is emerging as a key player in innovative climate finance, bridging cryptocurrency and climate action and aligning incentives to enable millions of people to take climate action. With just a few clicks of a mouse they can become a part of meaningful action and be financially rewarded for it.

What is regenerative finance (ReFi)?

ReFi uses money as a tool to solve systemic problems by changing the underlying story that sits beneath our current economic model, which values the accumulation of money and wealth that often comes at the expense of people and planet. ReFi instead uses financial capital to create healthy and equitable social and environmental systems. To meet our planetary crises of climate change, biodiversity loss and ecosystem collapse, the story underpinning our economic system needs to change.

Enter ReFi. It brings a different story to economics, one where value is considered within the context of the whole and profits are used to regenerate our planet’s ecosystems so they can continue to sustain life and address our pressing social issues of injustice and inequity. The story of ReFi is circular. It reminds us that money is a human invention — it’s a concept — and it’s not money that is the problem but the current design of money. A central tenet of ReFi is to re-imagine and re-design money and the systems it moves through.

ReFi is grounded in regenerative economics

Regenerative economics is a new philosophical model that advocates for economic-system design to be based on “the universal patterns and principles the cosmos uses to build stable, healthy and sustainable systems”².

In 2017 Tom Duncan, CEO of Earthbanc, developed a simple narrative about how it would function from a first principles basis, meaning the core truths regenerative economics would be built from.

‘Regenerative’ means compensating, and more, for all negative externalities

Being regenerative economically means every activity in the economy that extracts and degrades ecological, human and community health requires a greater regenerative activity that not only compensates for the extraction — but also creates a net improvement in those biophysical indicators.

We can conceive of it in another way using economics vernacular — every negative externality requires a greater positive externality. Generally the source of the negative externality should be the responsible party to fund or carry out the regenerative activity, i.e. the ‘polluter pays’ principle.

Negative externalities have failed to be appropriately accounted for

Traditionally these outcomes would only have been achieved if a government taxed the negative externalities and redistributed the funds to replenish that which was extracted or degraded. Sadly, this principle has only been established in some countries and the overwhelming approach of our economic system is for negative externalities to be absorbed not by the producer, but by the rest of the planet, with negative externalities felt both locally and also globally as diffuse crises — such as climate change.

One of the tragedies of our times is that rates of extraction far outpace regeneration, particularly in regard to the exponentially growing technology commons, and Earth Overshoot Day arrives earlier each year — the annual calendar date when humanity’s resource-use has gone beyond what the planet can regenerate in that same year.

Transitioning to a circular economy

Regenerative economics maps a transition pathway to a circular economy that replaces our current linear ‘take-make-waste’ economy.

A circular economy is a systemic approach to economic development designed to benefit businesses, society, and the environment whilst living within planetary boundaries. It is regenerative by design and aims to gradually decouple growth from the consumption of finite resources³. In a circular economy, just as in our current economy, shared perceived value drives profit — meaning that regenerative activities can become core business and finance activities.

ReFi is shifting the economy

The ReFi movement is about making positive change possible, with the financial return as a by-product. Money becomes a means and not an end. Incentives in our current economic system are predominantly set to maximise profits while ignoring or passing on negative impacts.

ReFi changes the incentives to positive externality maximisation for activities that repair, regenerate and heal, while also enabling capital to reach the communities most affected by negative externalities to adapt, mitigate and thrive.

Technology enables ReFi

Web3 is the third evolution of the internet characterised by blockchain technology that enables internet-native money. This form of finance sits outside of the conventional design of money. ReFi uses incentives created through newly designed markets built upon new web3 regenerative finance infrastructure. Programmable blockchain modules combined with AI, satellite and remote sensing data processing with distributed computational power means that today a farmer could deliver regenerative land and water management outcomes to regenerate the damage done by a food manufacturer and their associated negative externalities.

The positive externalities created by the farmer are a regenerative physical asset that can be tokenised in order to track, store and apply their value within the ReFi economy. In this ReFi example, the regenerative land management outcomes are minted by Earthbanc as eco-credits on Regen Network’s ledger and its meta-registry, which can then be sold. Companies such as Microsoft and large investment platforms currently buy carbon credits from Regen Registry, which is produced by a team of regenerative actors, including developers, ecologists and scientists.

New players and accelerated adoption of ReFi economics

Regen Network and their super fast Regen Ledger layer one blockchain enables new eco-credit classes to be created by the open source science community for regenerative activities, and is incentivising the new economics we described above. The key question we now turn to is how do these activities get financed and leverage investment markets to accelerate adoption, beyond the carbon and eco-credits being purchased by companies already committed to net zero and being Earth positive? Massive adoption and scaling is required to realise the exponential decarbonisation roadmap, particularly by 2030.

Enter Earthbanc — the ReFi app that finances carbon credit projects with Sustainable Land Bonds on Regen Ledger, enabling the next one billion unbanked farmers and land stewards to access the world’s first ‘carbon bank’, and connecting investors of all types to regenerative projects. Earthbanc has signed a world-first partnership with the United Nations Convention to Combat Desertification (UNCCD) to finance 100M hectares of land restoration — which we will share the details of in our next blog.

The regenerative finance revolution is just getting started! Stay tuned for more on ReFi and green investing from Earthbanc.

Read more about Earthbanc here.

Sources

[1] Boehm S. et al, (2021). We’re Not on Track for 1.5 Degrees C. What Will it Take? World Resources Institute.

[2] Capital Institute (2020). 8 Principles of a Regenerative Economy. https://capitalinstitute.org/8-principles-regenerative-economy/

[3] Ellen Macarthur Foundation | Archive. https://archive.ellenmacarthurfoundation.org/explore/the-circular-economy-in-detail