"The global economy, which is driving humankind beyond the limits of the planetary boundaries, is itself driven by the theoretical construct and practice of global finance...Just as we are in ecological overshoot, we are even more in financial overshoot.

Finance, in general , and specifically the flow of real investment capital is one of the critical leverage points to shift to a Regenerative Economy that serves humanity and stewards the integrity of earth’s ecosystems.

It will also entail a recognition that the regenerative process that defines thriving, living systems, enabling many of them to be sustainable over the long run, must define the economic system itself.

1. Right Relationship: It holds the continuation of life sacred and recognizes that the human economy is embedded in human culture and the biosphere.
2. Entrepreneurialism: A Regenerative Economy draws on the innate ability of human beings to innovate and “create anew” across all sectors of society.
3. Wealth Viewed Holistically: True wealth is defined in terms of the well-being of the “whole,” achieved through the enhancement of the multiple forms of capital.
4. Shared Prosperity: Wealth is equitably (although not necessarily equally) distributed in the context of an expanded view of true wealth.
5. Real Economy Circularity: The economy strives continually to minimize energy, material, and resource throughput radically at all phases of the production cycle, that products are remanufactured, recycled and composted, with natural outputs are safely returning to the biological world and that minerals and human made substances returning to the industrial cycle.
6. “Edge Effect” Abundance: Creative collaborations increase the possibility of value-adding wealth creation through relationship, exchanges, and resiliency.
7. Resiliency: The whole system develops the long run ability to adapt and learn from shocks; adaptability to change is valued over current brittle concentrations of power and hyper-efficiency.
8. Honors Place: A Regenerative Economy operates to nurture healthy, stable communities and regions, both real and virtual, in a connected mosaic of place-centered economies."

The above is an abbreviated version of an article Transforming Finance and The Regenerative Economy by Hunter Lovins and John Fullerton (Source: The Capital Institute – www.capitalinstitute.org) was published in Green Money Journal 

And here is a reality check - Fossil Fuel Subsidies

CHATHAM HOUSE recently published this article comparing global investments going into clean energy vs fossil fuels: "According to the International Energy Agency,

The question is, why has the private sector’s enthusiasm for hydrocarbon investment continued at such a high level – beyond what is needed to exploit fully existing energy assets – despite the evident risks?

This is reflected in the vigour with which some major oil companies have resisted shareholder initiatives requiring them to give more weight to climate change in their decision-making. A plausible explanation and potentially important factor is ‘moral hazard’. In this case investors know the high risk of continuing to invest in hydrocarbon assets, but are attracted by the returns.

They assume that governments will either choose to bail them out should the risks crystallize, or be forced to do so because the consequence for the financial system and national economy would be too severe.

• One possible reason is that investors simply do not believe governments will take the necessary steps to meet the Paris Agreement goals. New coal, oil and gas investments, they may think, will be profitable over their normal life span, notwithstanding the consequences for climate change.
• Investors may recognize the potential in green investment, but lack the information, including default data and modelling capabilities, to identify good projects. Investors tend to focus on familiar investments and investment processes (path dependency), because they feel they know how to manage the risks.
• Another possibility is that the returns on hydrocarbon investments are boosted by fossil fuel subsidies. These cost some $7 trillion globally in 2022, of which around $1 trillion were explicit subsidies. Political lobbying helps to keep these subsidies in place as does the complexity of dealing with the socio-economic consequences of the energy transition...."

The above is an abbreviated version of fan article from The Chatham House, which was reproduced (with permission) in abbreviated format and bullet points added. Read the full article in: Creon Butler, Chatham House, June 27, 2024, Policymakers need to address climate-related ‘moral hazard’ in financial markets

Another reality check: National Debt

"If you look at the relationship between debt and oil, the US is currently raising debt at about a billion dollars an hour while simultaneously drawing down the strategic petroleum reserve.

The relationship between those two is never connected and the amount of debt the US now has, which is around $34 trillion, is probably more than all the extractable crude oil on earth at today's prices.

Societies believe our wealth is solely because of money and ingenuity. These are important but both rely fully on energy, materials, and ecology. The divergence between these two narratives is widening rapidly." 

Transforming the finance system

According to the 2024 WWF Living Planet Report "...globally, over half of GDP (55%) – or an estimated US$58 trillion – is moderately or highly dependent on nature and its services. Yet our current economic system values nature at close to zero, driving unsustainable natural resource exploitation, environmental degradation and climate change.

1. Money continues to pour into activities that fuel the nature and climate crises: private finance, tax incentives and subsidies that exacerbate climate change, biodiversity loss and ecosystem degradation are estimated at almost US$7 trillion per year.
2. The positive financial flows for nature-based solutions, in comparison, are a paltry US$200 billion.
3. By redirecting just 7.7% of the negative finance flows, we could meet the funding gap for nature-based solutions and deliver nature, climate and human well-being benefits.

Transitions

1. While global climate finance for the energy sector approached US$1.3 trillion in 2021/22, the need is a staggering US$9 trillion annually for both mitigation and adaptation through 2030.
2. Similarly, the transition to a sustainable food system needs a huge increase in spending to US$390–455 billion annually from public and private sources – still less than governments spend each year on environmentally harmful agricultural subsidies.

Filling these gaps demands a seismic shift at global, national and local levels to get finance flowing in the right direction, away from harming the planet and toward healing it

What needs to be done?

The transition away from a collapse-prone financial system and economy, both of which are driving ecological collapse will not be quick or easy.

• It will require new energy for fundamental systemic reform to create the conditions for finance to serve the Regenerative Economy.
• Merely optimizing single variables such as the ill-conceived shareholder value maximization are insufficient in the era of Regenerative Capitalism. Corporate legislation needs a complete reset from the present company fiduciary duty to 'profit over everything'.
• The ongoing financial reform agenda, which was conceived in the context of the old, degenerative worldviews is no more than inadequate tinkering at the edges.
• The notion of economic and financial success must be entirely reconsidered, as this perspective is putting us back on the path of exponential expansion and further ecological collapse.

Above all, we must re-conceive finance in the service of a regenerative economic system.