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Why the smart money is flowing into ReFi

 

Our planet faces a vast array of threats, many of which are simply too large and complex for any combination of governments or NGOs to tackle alone. If we’re 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 shareholder profit with a system that puts environmental and social goals at the forefront.

But why? And is this even possible? Let’s take a closer look.

Fatal Short-Termism

Finance is adept at doing 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.

The focus on short term profit at the expense of all else has become evidently unsustainable. ReFi shifts the focus, prioritising the long term health of the system with wealth creation as a happy byproduct.

According to Ransu Salovaara, CEO of carbon platform Likvidi, “The ReFi sector’s ultimate goal is to encourage more individuals and companies to be net-zero. 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 can’t fix the problems in the banking system. For example, it’s not uncommon for a firm offering fossil fuel free investment funds to simultaneously offer commercial loans towards fracking, Arctic drilling, and coal.

A ReFi Revolution

New technologies like blockchain and Web3 are opening up new ways of investment and organisation that enable more ethical outcomes on a larger scale.

According to Ransu, “Within the next ten years, pretty much all of the financial sector will be somewhat sustainable, with all investors having some ESG aspects on their mandates. I fully expect 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 aims to ensure long-term gains and survival of the system. It aims to help reduce climate change by funding carbon mitigation and sequestration; restore natural ecosystems by cultivating biological diversity; and institute social justice.

ReFi In Action

ReFi and Fintech (tech-driven finance departed from the traditional mainframe banking IT structure) enable positive change in the world that wouldn’t be possible without.

Salovaara says, “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 being put into practise in various sectors:

Regenerative Agriculture

Much like how ReFi aims to create sustainable finance, the goal of RegenAgri is to rehabilitate and enhance the whole farm ecosystem, improving the resources it uses rather than depleting them.

The problem is that farming is capital intensive with intense price pressures. It’s difficult to make the case for investment by focusing on profitability alone, and that’s why ReFi is so important. By putting the mission of improving the overall environment before financial profits, positive long term outcomes are achieved.

For example, Danish firm Agreena is incentivizing farmers to improve the health of their soils by providing a platform that allows them to earn money by selling carbon credits earned by capturing carbon in their soil through improved farming methods.

Mission First Structures

Regenerative Finance is not just about new technologies, but 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 with let them prioritize their mission above profit.

Carbon Credits

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 that are moving credits to blockchain.

Salovaara commented, “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.”

And in fact that’s just what Likvidi is doing with its new ReFi platform which aims to help individuals and companies to reach a net-zero carbon footprint. Likvidi’s core products include tokenized Carbon Credits, Carbon Forwards and Carbon-yielding NFTs. It offers carbon offsetting alongside a primary market venue, Carbonstore, and a secondary market venue, CarbonDEX.

ReFi is an ecological investment and also a statement that positive change is possible. Follow Likvidi to stay up to date with the latest ReFi developments, TwitterDiscordTelegram.

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