Climate change has a global coordination problem. Despite governments and consumers demanding climate action and organizations casting declarations of their sustainable operations, we cannot ignore that the system has failed to coordinate effective policies and capital investment that address the most pressing threat to humanity. Abundant global resources are under our command to prevent ecological cataclysm and ensure that the bottom line is met. Experts agree that increasing annual investment in clean technologies and infrastructure by as little as 2% of global GDP would be enough to prevent catastrophic climate outcomes, yet we appear to be unwilling to do so. With traditional finance fabricated around a narrow set of criteria that only seeks capitalistic profit for the advantage of exclusive shareholders, it is clear that the current economy must be transformed to provide for holistic investments that benefit all.
As the world focuses its attention on digital technology to propose methods of action, the importance of blockchain is increasingly evident. Enter “regenerative finance,” or ReFi for short, as the call for action that the industry greatly needs. Viewed as an umbrella term for all things environmental on the blockchain, ReFi is the union of the principles of long-contended regenerative economics and decentralized finance, leveraging Web 3.0 technologies to organize and distribute capital more effectively towards climate-positive innovation.
Transitioning to renewable energy
Despite our attempts at playing catch-up in the wake of the climate emergency, markets have persisted in their ability to ignore the negative externalities of carbon emissions through the inefficient designation of resources. This is where regenerative finance comes into play. Implementation of distributed ledger technology and blockchain can serve to amend these downfalls by allowing the intelligent allocation of resources, thus affording the time for companies to materially adapt their supply chains and processes to achieve net zero emissions.
Although carbon offsets may seem like the remedy for environmental equilibrium, the discouraging reality is that they are notoriously complicated, posing the sector with its own well-rehearsed problems and opening its doors to violations. While they are admittedly in their early stages of adoption and implementation, reducing carbon emissions is just one piece of the puzzle in mobilizing climate action.
COP27 clearly emphasized the significance of heightened investment in renewable energy. We need to mobilize between US$4 to US$6 trillion per year for renewable energy through 2030 to reach net zero targets, yet investment in renewable energy capital is plagued with financing difficulties. Additionally, the reallocation of funding within the growth imperative system takes time. New renewable energy developments are in direct competition with subsidized and favored fossil fuel incumbents, making capital skittish and new emergents financially inviable. If we are to go beyond scratching the surface in our attempts, ReFi’s initial focus on the carbon market can now shift to funding the energy transition. In typical decentralized fashion, blockchain technology can securely and transparently bridge the financing gap and play a crucial role in driving necessary investment to shift away from fossil fuels.
Aligning agendas for cooperation
For regenerative finance to become mainstream within our current financial framework, we must not fall into the trap of business-as-usual mechanics. Corporations make up approximately two-thirds of energy emissions and, as a consequence, account for a majority of climate impact. There is therefore no solving the climate crisis without their buy-in and commitment.
In comparison to the expeditious growth of the blockchain industry, governments have been imperceptible in addressing this issue. As the cries for climate reform have intensified, governments are finally shining the light on the possibilities afforded by emerging technology. In September of this year, The White House Office of Science and Technology Policy published a report on “Climate and Energy Implications of Crypto-Assets in the United States,” providing an overview of the Biden administration’s climate priorities. Aligning with the fundamentals of regenerative finance, Biden’s executive order affirmed the nation’s attentiveness towards sustainable financial innovation, reiterating the potential of blockchain and digital assets for developing technologies that monitor or mitigate climate impacts.
Despite seeming advantageous, companies are stuck in the multipolar trap of playing the game of capitalism, whose rules are quite explicit — profit at all costs. It is not a game defined by any agent in particular, but it is reinforced through our governance structures, legal accountability and market mechanics.
Given their legal responsibilities, even the most benevolent of businesses struggle to justify their climate impact initiatives when these actions threaten their bottom line. At best, we see “opt-in” climate targets, which, while noble and sincere, ultimately rely on the goodwill of business leaders to “do the right thing,” which often directly runs counter to their economic survival in an ever-increasingly competitive landscape. For companies to truly deliver on their climate promises ahead of the 2030 deadline, they need Wall Street to embrace their idealism, and until investors start measuring companies by their impact, private actors face an uphill battle. This means that the common enemy of the planet is not bad business, it’s bad incentives. Putting it straight, the innovative, decentralized financial tools and services that ReFi provisions are a paramount panacea for corporate ills.
As legendary investor Charlie Munger once said, “show me the incentive and I’ll show you the outcome.” The problem of failed corporate environmental activism is not a consequence of a lack of care or ethics, but rather a matter of perverse incentives as well as limited awareness. Parallel to the necessity of policy, the irrefutable tone shift in how the regenerative finance community defines its ambitions and approaches new partners reveals the need for deep subject matter expertise by policymakers, institutional investors, embedded operators, and scientists. Yes, regenerative finance clearly still has significant room to grow, but if we act now and push for deeper comprehension and more inclusive community-building, we should observe a uniting effect, paving the way for the incentives of people, planet and profit to finally be aligned.
