At the Intersection of Regenerative Agriculture and Finance

David LeZaks on ‘soil wealth,’ the true cost of food, and moving toward biomimetic systems

This is a feature of the Presencing Institute’s Dialogues on Soil and Society, a compilation of interviews that frame agriculture as a critical area for curbing climate change and spurring societal transformation. The goal of the series is to identify promising place-based projects and systemic interventions to support sustainable, just, and reciprocal food economies. This interview was conducted by Katrin Kaeufer and Zoë Ackerman.

David LeZaks is a senior fellow at Croatan Institute, a Durham North Carolina nonprofit whose mission is to harness the power of investment for social good and ecological resilience. He holds an M.S. in Land Resources and a Ph.D. in Environment and Resources from the University of Wisconsin. In 2019, as part of a USDA Conservation Innovation Grant, David and his colleagues from Delta Institute, Croatan Institute, and the Organic Agriculture Revitalization Strategy (OARS) published Soil Wealth: Investing in Regenerative Agriculture across Asset Classes, which provided an in-depth analysis of both current and potential investments in farmland and agriculture.

What woke you up to the work that you do today?

One of the big turning points on my journey was in graduate school, working on my Ph.D. in environmental science. A colleague, who had gone through the Ph.D. program a couple of years before me, took the pathway post-Ph.D. into the financial sector. He approached me and said, “Would you like to come work on a white paper with my company?” It was Deutsche Bank, and the work had to do with investing in agriculture. I responded: “I don’t know anything about investing, but I can probably help you with the agriculture piece.”

That was just over a decade ago. It was my introduction to this linkage between finance and agriculture flows.

Fast forward a couple of years. I worked on a national US college agricultural innovation prize, which brought together students from all over the country to work on advancing innovations in agriculture. One of my roles was to bring together judges and mentors from the banking and investment sector. Again, I began to see this connection between how the financial world operates and the needs of businesses, who want to scale ideas into real, positive change.

A few years ago, I had the opportunity to take a step back and reflect on what I saw happening in the work I had done up to that point. I observed two trends: One, related to soil health and sustainable agriculture, and the other one had to do with impact investing. I noticed that more people wanted to see their money being used for positive social, environmental outcomes. I realized that I needed to work on bringing these two trends together. And that’s where the idea of soil wealth was born.

How do you define and explain soil wealth?

When we researched and wrote the paper on soil wealth, we wanted to make sure that we weren’t just talking about the soil’s physical attributes, because the soil is a physical, biological, and chemical entity. We also wanted to include the aspect of its relationship with the people who are managing it.

We need to look at transitional finance and ask ourselves how to transition from an extractive type of enterprise to a regenerative one.

We also need to consider the impacts, or the actual costs, by looking across all those pools of capital. Moreover, making sure that we can leverage all the pools of capital into the conversation, into the equation that we know we need to make this all work.

When you look at this field where regenerative agriculture and impact investing meet, where do you see success? Where do you see friction?

I think that there is so much momentum built up on both sides of the system, meaning the financial and agricultural sides. And we have built up those rigid systems over hundreds of years. That makes it challenging to change our mindsets and our way of doing business and our economy, or to create a different kind of value chain, because there is so much movement in the other direction.

When we begin to see some of our systems’ implications, whether it be epidemic rates on the health side, or rates of ecosystem degradation, report after report says that we have X number of years of topsoil left. We begin to see what the costs of our current systems are. As it’s been said before, cheap food is actually very expensive once we consider those external costs.

We see the opportunities to take a more holistic, integrated look at food and the rest of the pieces of our economy. And to ask ourselves how we might be able to begin to capture the rest of those potential positive externalities.

I see some of the bright spots worldwide, from the network of farmer’s markets to more larger changes like institutional procurement. Everybody is on the lookout for those tipping points, and I think that the question of how to do business in a better way is becoming the norm, not the exception. There are already examples of that happening in investment circles and local economies. And all of that is pointing in the direction of, “Wow, this works! And it’s feasible and scalable and spreadable in the ways that I think we’re hoping for.”

What does it mean to capture the cost of negative externalities?

There’s a lot of activity happening in the true cost accounting space right now. They come both from the perspective of trying to assess potential investments around these true costs, and how we think about kind of these flows of capital or the risks associated with them.

So we know that one of the main jobs of those who primarily deal with moving money is the assessment of risk. And when these risks aren’t accounted for, it adds another uncertainty to those investments. Whether that is a social risk, whether that’s political risk, whether that is regulatory risk, if you don’t begin to account for those externalities, then there’s the negative value being created.

And we see that there’s not only immediate risk and degradation to ecosystems, but also long-term intergenerational impact.

We need to ask ourselves: how can we look at the timelines of some of these externalities and begin to think critically about how we can address what’s happening now? And how can we begin to distribute those risks? What are the implications for how we finance the current set of extractive activities and the transition to a more regenerative economy?

Is there a tension between the system perspective and the perspective of the individual actors?

There’s always going to be tension when you’re looking at an institutional manager who needs to manage the institutional risk and their career, timeline, and expectations because this might go against the institution’s risk. If they need to be paying out pensions or insurance in the future, they will have very different risk tolerance regarding capital management and what might be acceptable.

I think the movement there is slow, but what we’re seeing is a recognition that if these institutional managers are going to be managing for the long term, then they have to start changing behavior.

And I think we’re starting to see some of that playing out in the ESG [Environmental, Social, and Corporate Governance] space. Last year, I was in a room full of institutional managers discussing agricultural land. That was the first time that I saw someone, in such a conservative crowd, stand up and say, “ESG isn’t going away. And we’re going to have to deal with this somehow.” And so they realized that they need to take that true cost accounting perspective. That means moving toward managing all of the risk factors, be it environmental, social, governance, agricultural, or other pieces of the economy.

What are some new forms of investment that are popping up?

For example, at Croatan Institute, we’ve focused on total portfolio activation approaches. So we’re looking at all of the asset classes, public equity, private equity, fixed income, real estate, venture capital, and others. In the Soil Wealth report, we looked at an aggregate of 67 of those mechanisms, instruments, and approaches that could be used to move more appropriate kinds of capital into the growing regenerative agricultural sector.

To move that forward, we took a model used relatively successfully within the energy space, and that being the property assessed clean energy [PACE Model]. We took a step back and said, “Well, that’s an interesting financial model used, does it have relevance to agriculture?”

In many other cases, land secured, property assessed financing can be used to spread out risk and extend repayment timelines. Additionally, from the perspective of PACE financing, a loan used to put solar panels on a house has debt attached to the land or the house, or in the case of agriculture if the loan is attached to the agricultural land. In this way, it disconnects the manager or tenant from the debt, which is how most agricultural lending is done, and it ties to the land.

We took that PACE concept, looked at other land-secure types of financing, and made a proposal to USDA: to look at this land-secured, property assessed financing for agriculture through their Conservation Innovation Grant process.

Along with a partnership of about 20 other partners across the U.S., we received a two-year $700,000 grant. It’s similar to the one that supported the research and writing of the Soil Wealth report. In this project, we will be looking at not only the land-secured, property assessed financing models, but also how clusters of farms could be arranged into Regenerative Organic Agricultural Districts that would futher support and align these areas as they transition to a more regenerative agriculture.

For this project, we highlighted 1 of the 67 mechanisms we wrote about in Soil Wealth, realizing that many others needed to be tried out, tested, and then adopted because this is not a one size fits all solution.

There seems to be a general conception that regenerative agriculture happens on a smaller scale. Is this true?

We think about regenerative agriculture from a scale neutral perspective. We know that we have almost a billion acres of land in the US that will need to be managed better or differently if we’re going to get out of the next century alive.

In many cases, a lot of this change will happen on a small scale, but we’re also going to need to transition hundreds of millions of acres of land. And that’s going to take operations of many different sizes.

An example would be when we worked on an organic transition loan product last year. We worked with the support from a foundation, an organic supply chain company, and an international and a regional bank. We chose to work with organics due to the current market dynamics and the price premium available. At the same time, these are scarce when talking about “regenerative” products.

We went to the bank and said, “Here’s conventional economics, here’s transitional economics, and organic economics. And over a three, five, eight-year timeframe, the organic economics will work out a lot better. Still, a different kind of financing is needed at the beginning to get this started.” That kind of financing that is needed to transition to a broader landscape and larger farms in the thousand-acre plus range is now going. It went from a concept to, now, actually happening on farms across the US.

What banks are participating in this work?

Led by Pipeline Foods, we worked with Rabobank, a large, international, mostly agricultural lender. The other bank was Compeer Financial, which is part of the farm credit system in the US. And that’s about a $20 billion bank. So no small entity there.

It’s not only about them wanting to tell an impactful story around what they are doing but what their customers are demanding. So they had customers coming and asking them to say, “Hey, I want to transition to organic.” And before this time, the answer was, “Well, we don’t have any financial tools to do that. Sorry.” It took this multi-sector collaboration to find the data and develop a risk-sharing framework to provide the technical expertise and marketing support and put all those factors concerning each other so that a new product like this could come to market.

How do you deal with factors like climate change, and how does this play into the financial product?

Between climate change and decades of poor soil practices, we’re getting to the point where we see the near-term implications and increasing amount and strength of extreme events. We also know that not all land is going to react the same to climate change as it relates to soil health. There are innovations afoot around new insurance models. Mechanisms that take conservation practices and consider soil health and build it into insurance products and other places where that kind of the risk can be managed.

What’s your impression of the public narrative around food, and the true cost of food?

I went through a nine-month, cohort-based deep learning experience through the RSF Social Finance Integrated Capital Institute. I had the opportunity to think about the relationship between the finance system and the agricultural system. More specifically, I began to think about how human health relates to our agricultural system. And this is where I believe the conversation should go.

So much of the agricultural conversation has been around conservation and soil health, which is excellent, and I don’t want to downplay that. But we have to remember that we’re talking about agriculture. Agriculture is about creating food that nourishes us. Not only us as humans, but also the microbiota within us that act to keep our immune system, and thus us as beings, healthy.

The soil has its own set of the microbiota. So we have the soil microbiome and the human microbiome. How are these systems controlled? How are they regulated, not only our organs or cells but also by us as a host to other things? Here are more non-human cells within us than human cells, given what’s living in our guts. Let’s think about how we manage ourselves, how we manage our soil, how we handle our interaction with the land, because food is the currency that intermediates all of these relationships.

Many of the negative externalities of our agricultural system end up in the healthcare system, not only with diets but also due to the steep, downward slope of the quality of our food over the last hundred years. We’ve managed agriculture to make things like cardboard tomatoes and tomatoes that don’t taste very good but look like tomatoes and can be shipped worldwide. But that doesn’t mean that they’re nutritious and doesn’t mean that they taste good, or that they’re good for us.

Integrating the health component into our agriculturally dominated conversations will be the frontier of where these systems, from agricultural practices to true cost accounting, will meet.

It’s a timely moment to be talking about the health component.

Right, and we shut down economies over the health implications that we’re in the middle of that right now, one that happens to be transmissible between people. Most of the outcomes of a sick agricultural system are non-communicable diseases. We can only see that there’s no way to separate our activities from ecology and the world we live in when facing an infectious disease.

And I think that, at the core of my work, again coming from the perspective of an environmental scientist working in the financial realm, is the question of how to create a more biomimetic financial system, and how to create a more biomimetic agricultural system.

In many cases, those two need to be closer together. And it is that interface around the question of human health is where they indeed come together.

If you had to articulate a vision for 2050, how would you summarize that, and what is necessary for it to be possible?

Connecting it back to the central thesis around Soil Wealth, we know that we need to realign our financial value chains and our agricultural value chains. In terms of agricultural finance, we need to do a much better job of accounting for our agricultural system’s true costs and benefits. And that accounting has to show up on the books and within those transactions.

I think that financing is no longer just about financial calculation. It needs to be multifunctional in the same way agriculture is. It needs to account for both the short term and the long term and implications and impacts of how the money flows.

From the risk management perspective, at least on the public equity side, groups like the Sustainability Accounting Standards Board (SASB) have done a great job of pointing out materiality, at least in some public equity supply chains. But that’s on the side of the public equities market. We need to take that kind of framework and look at where there’s materiality and how it needs to be managed. The long-term intent for activities like that is to get that into legislative and regulatory frameworks.

We need to show many other kinds of successful examples supported by impact investors, supported by philanthropists and government grants. We’ll demonstrate that these types of accounting frameworks, these types of financial models, these types of transactions are going to lead toward the transformation of both agricultural and financial systems and that this is possible. We need to demonstrate that before introducing it at scale.