What is regenerative capitalism and how does it promote sustainable development?

We are destroying the planet's capacity to maintain life, and with it our ability to develop in a way that is sustainable. Every year, pollution claims 7 million lives, while more than half of the world's wild animals have disappeared in as little as 50 years. Capitalism as we know it is unsustainable. Not only socially and environmentally, but also economically. However, its key components—private enterprise and markets—are essential to addressing the social challenges we are facing if we want to meet the Sustainable Development Goals (SDGs) and comply with the Paris Agreement. Therefore, we have to start thinking about alternatives to capitalism as we currently understand it. One such alternative is regenerative capitalism.

It is time for leaders across all sectors to work together to reinvent capitalism, to shift towards a model that rewards value creation rather than value extraction, as is the case with the current model. Companies have to make a profit but they must also serve a purpose. Now it's time for a new economic model: let's discover what regenerative capitalism is all about.

What is regenerative capitalism?

Let's be clear from the outset: we're not rehashing the old debate between capitalism and socialism. Both systems, even if well implemented, are unsustainable.

An economy based on regenerative capitalism would see profound changes to the regulations, norms and institutions that govern markets. It would see a systemic transformation that would trigger a wave of exponential change, having a positive impact on both people and the planet.

Unlike the current model of capitalism, the aim of regenerative capitalism is to take account of social and environmental costs and benefits and to ensure that these are reflected in the price of goods and services, as well as in corporate profit and loss statements, capital expenses and market valuations.

This would push companies towards sustainable innovation and lead to capital markets properly valuing and rewarding sustainable business practices. As a result, more and more capital would be mobilised to comply with the SDGs and the Paris Agreement.

But how do we achieve the transformation needed to establish this new, more sustainable system? Incentivising the behaviour of businesses and investors will be crucial. They are the ones who can rewrite the rules of the game. And they can achieve this by leading by example. By adapting and aligning business and governance models, fiscal strategies, remuneration, reporting and accounting with a vision of capitalism that seeks overall value rather than just monetary value, in line with the economy for the common good.

Responsibility, resilience and regeneration

The concept of regenerative capitalism is the brainchild of John Elkington, whose book Green Swans: The Coming Boom In Regenerative Capitalism explains how this new system offers exponential progress in the form of economic, social and environmental wealth creation.

Its outlook is positive: "We are seeing a rapid expansion of the sustainability agenda; from responsibility to resilience and regeneration." Because Elkington believes that it is no longer enough for companies to just be responsible. Responsibility means, for example, that a company may do something to protect the environment but it does not mean that this protective action is part of their raison d'être as a business. In other words, it does not address the structural change that we are demanding.

This is why the author claims that we need a system that shifts from responsibility to resilience and regeneration. The thing about resilience—which is the ability of ecosystems, communities or settlements to adapt to change—is that simply talking about it does not bring it about. Large investment is required to make it effective and to build cities, for example, that are resilient to natural disasters.

A great example of this is the European Union and its European Green Deal. This is a plan to invest heavily to tackle the economic crisis brought about by the current pandemic and in doing so, to transform the economic system so that it is focused on renewable energies and achieving carbon neutrality.

And the key to recovery is regeneration. "It is only by regenerating our economies and communities, and the wider biosphere, that we will be able to achieve true resilience", says the author.

We need to inhabit a new world to meet the new challenges that climate change is presenting. We are on the road to regenerative capitalism. We now have a once in a lifetime opportunity to change the economic system so that we can achieve the sustainable future we desire.

Sources: Regenerative Capitalism: How universal principles and patterns will shape our New Economy, Reinventing capitalism: a transformation agenda