By Deva Armoogum

A new collective mental map is needed, one that moves away from classical Newtonian science, with its linear and mechanical worldview, toward a systems-view of life

Andrew Sheng, The One-Earth Balance Sheet

In the first part of this article, “A new economic paradigm: from sustainability to regeneration”, published in the last issue of Conjoncture, we explored a new economic paradigm as a response to threats to planetary and human health resulting from dominant capitalist economies and industrial processes, particularly in the agricultural sector. We saw the strange connections between eating the right food and saving the planet. This right food can only come from healthy soils produced through regenerative forms of agriculture which restores the bio-dynamic systems in the soil. This not only creates greater resilience against pests and diseases, but produces essential nutrients for the human body. It also enriches the gut biome with microbes which play an important role in metabolising the bio-chemicals needed for the immune systems, as well as for physical and mental wellbeing. Organic foods also come free of toxic chemicals which cause many chronic and degenerative diseases.

Importantly, regenerative agriculture reverses the negative environmental impacts of industrial agriculture by lowering the need for fossil fuel and eliminating toxic wastes from fertilisers and pesticides. However, we found that adopting regenerative practices has to be supported by an economic and financial system which redirects capital flows to such pioneering projects, aims at a more equitable distribution of costs and benefits, and makes the farming community a pivotal element in this revolutionary drive to salvage the planet.

In this second part, we move from principles to praxis, taking a closer look at the economic and financial systems, and how business models have to adapt to the new realities of the game. Converting to permaculture or other regenerative practices have been viewed by many people as a romantic venture, led by individuals who dream of re-creating the Garden of Eden or are motivated by a missionary zeal to save the planet. While the health (human and soil) and social consequences are undeniable, it has to be demonstrated that such marginal ventures can join the agricultural mainstream. Establishing their feasibility is still at the research stage, generating a wealth of literature from both academics and practitioners. Equally there has been some very promising realisations in the economic and financial worlds, but the need still remains for redefining the game in the wake of this new awareness.

From GDP to One-Earth Balance Sheet

Much of the present economic system dwells on the recognition of a single indicator, which is the gross domestic product (GDP) growth. Developed in the wake of World War II recovery, it became the measure par excellence to track economic progress in a period which witnessed a non-stop surge in industrial production. In the equations adopted by economists and politicians, growth became a dominant factor, and nature was left out and was viewed as an inanimate and unlimited resource available for exploitation in wealth creation. Despite early warnings, for example by Club of Rome’s Limits to Growth, no one paid heed to the impacts which over-exploitation could have on the earth’s ecosystem. We have now reached the red alert for humanity as revealed in the recent report of Intergovernmental Panel on Climate Change (IPCC) of the United Nations, with some impacts now considered to be irreversible.

Business models have to adapt to the new realities of the game.

The world has reached this calamitous situation mainly because the economic system is essentially anthropogenic, favouring value creation solely for humans without caring for resource depletion, loss of biodiversity, pollution and above all, global warming. This was brought out clearly by the Stiglitz-Sen-Fitousi Commission after the 2008 global financial crisis. This commission showed the limits of GDP as the sole indicator of economic performance and social progress. There was clearly a need for new forms of national and international accounting which measures all the externalities hitherto unaccounted for. The Commission shifted from measuring economic production to measuring people’s well-being. Hence arose the need for a “One-Earth Balance Sheet” which is able to describe the true and fair accounting for Earth that covers natural capital and biodiversity, over and above what GDP does.

Says Andrew Sheng in The One-Earth Balance Sheet: “But if we consider Earth as a living being, we can easily amend the current accounting measurement frameworks to take into consideration human interactions with nature. For example, suppose we create an extra “nature” sector for national and international economic accounting systems. We could keep records of how much it has “transacted” in terms of carbon emissions and capture, usage of natural resources, pollution and more.”

The corporate world is already adopting this multi-stakeholder accountability in the form of triple bottom line reporting, though much of this is in the form of narratives. While impact assessment and integrated reporting are becoming the norm for an increasing number of large corporations adhering to the new principles of corporate governance, it is still not fully recognised in strategic planning and endorsed by global financial markets. At the economic level, the latest OECD report on natural capital and biodiversity revealed that out of 89 countries that implemented accounts consistent with the U.N. System of Environmental Economic Accounting, most are incomplete and only 34 have developed ecosystem accounts.


Redirecting capital flows

There has been growing interest in nature-based solutions (NbS) as a result of the increased awareness of environmental hazards as well as pressure from activists and various stakeholder groups, including enlightened and responsible customers and citizens who are wary of the legacies they will leave to future generations. There have been ripple effects across financial markets, engaging both private, public and international actors, and these seek to direct capital flows to projects with measurable impacts on the environment, including regenerative agriculture. As the markets develop, there will be a greater understanding of NbS opportunities, and eventually sophistication of financial instruments with sufficiently attractive risk-return profiles to be of interest to mainstream investors.

Multi-lateral agencies like UNEP (United Nations Environment Program), IFC (International Financial Corporation) and GIIN (Global Impact Investment Network) play an active role in promoting the environmental agenda and creating a new financial architecture and credit enhancement tools. For instance, UNEP’s “Invest in a Healthy Planet” makes the case for investing in forests and agriculture which, in spite of their potential to contribute to 30% of the climate crisis solutions, are attracting a mere 3% of climate finance: “To feed a growing population and stop catastrophic climate change at the same time, it is critical that we transition to sustainable, deforestation-free agriculture. However, the path has been obstructed by prohibitive cost and financial risk for lenders and investors when financing this transition. By combining the capabilities of banks, governments and agri-businesses through blended financial instruments, the UN Environment Programme and partners such as Rabobank and BNP Paribas have now set out to overcome this hurdle and trigger a transformational shift in unlocking and scaling up private finance to save forests, restore landscapes, create jobs and transition to climate-smart agriculture.”

UNEP was thus able to mobilise more than $95million to fund a sustainable rubber plantation on degraded land in Indonesia. This project created 16,000 fair-wage jobs while helping to preserve one of the last sanctuaries for wildlife.

Building on similar experiences, UNEP has been able to create a new privately financed US$1 billion fund, the Agri3 Fund, to finance sustainable agriculture investments in developing countries. Through its Finance Initiative, UNEP is also partnering with the global financial sector to promote sustainable finance.

Sustainable or Green financing is often dished out in the form of Impact Investment, which is defined by GIIN as investment made with the intention to generate positive, measurable social and environmental impact alongside a financial return. In a survey carried out by IFC, it was estimated that the market size for total assets of potential private impact investors to be around $2 trillion. Furthermore, there are Development Finance Institutions (DFIs) which contribute to the impact investment pool.

At a much smaller scale, but more specific to regenerative agriculture, the Agro-Ecology Fund (AEF) is a multi-donor fund which supports agroecological practices and policies. Its objectives include the support of viable food systems, promotion of economic well-being and human rights of small farmers and their communities, and the mitigation of climate change through low input agriculture featuring sustainable soil and water use.

To conclude this section on finance, a rather interesting development which can complement the impact investment markets is the adoption of crypto-currency to serve the permaculture community. Known as Permacredits, this claims to be ‘’bitcoin 2.0 in action’’.

Says Adam Horman in Bitcoin Magazine: “So let me be clear here. This is the first time a coin is being used to directly build a market. It happens to be a market that is based on values like sustainability, rejuvenating soil, taking care of people and ultimately producing profits. Permacredits are actually backed by voluntarily gifted surplus profits, and have a base floor price equal to those profits shared back into the network by the businesses we fund… Permacredits is a vehicle to transform the world into a healthy, sane, more balanced place for future generations and make money doing it.”

Business for profit only will gradually fade into oblivion.

Sustainable business models

Creating new financial systems and credit instruments will be of little consequence if financiers and entrepreneurs (or more specifically agripreneurs) are not able to share a common language. The Business Model is the language par excellence which organisations use to design and impart to stakeholders their strategic map. The Business Model Canvas, a toolkit developed and popularised by Osterwalder and Pigneur in their handbook on Business Model Generation, rapidly reached out to the business community as a favourite for devising strategic innovations.

The business model concept is now being expanded to embrace sustainability thanks to the pioneering efforts of Anthony Upward and many others who constitute the Flourishing Enterprise Movement. According to Florian Lüdeke-Freund (Working Definitions Of “Sustainable Business Model” & “Business Model for Sustainability”), “a business model for sustainability helps describing, analysing, managing, and communicating (i) a company’s sustainable value proposition to its customers, and all other stakeholders, (ii) how it creates and delivers this value, (iii) and how it captures economic value while maintaining or regenerating natural, social, and economic capital beyond its organizational boundaries.”

The business model canvas, the toolkit used in business modelling, has been modified to include elements for environment and society, with added boxes for biophysical stocks, ecosystem services and actors, as well as social needs. The value proposition now gets split into value-co-creations and value co-destructions. Inbuilt in this model is a shift from economic efficiency towards system resilience and long-term thrivability, aiming at nurturing a flourishing society within an equally flourishing environment. The ensuing Flourishing Business Canvas is depicted in Figure 1.

Figure 1: Flourishing Business Canvas. Source: Anthony Upward/Edward James Consulting

The concept of Sustainable Business Model is perhaps best understood by considering two extreme situations. At one extreme, it is estimated that 300 million farmers presently practice slash & burn, clearing forests for subsistence farming, releasing 2 billion tons of carbon in the atmosphere, devastating ecosystems, driving wildlife to extinction and destroying soil fertility. This practice which has been going on for thousands of years and perpetuated even by modern industrial farmers, albeit with chemicals replacing slash & burn, are in the long term destructive of planet, people and profits.

A the other extreme, consider a company like Indigo Ag, a US-based agricultural technology start-up that was valued at $1.4 billion in 2017: “In 2019, the company launched a service called Indigo Carbon to help incentivize farmers to remove carbon from the atmosphere and sequester it in their soil. The service provides technologies and recommendations for regenerative agriculture practices. The ultimate goal is to pay farmers for each ton of carbon captured and then sell certifications to companies looking to offset their carbon footprints. By supporting a transparent carbon credit marketplace, Indigo Carbon creates benefits for all participants: the farmers, the companies buying the offsets, the planet, and its own business.” (Source: BCG Henderson Institute)

It is interesting to note that the Business Model for Sustainability (BMfS) is being constantly researched, not only by ‘’pracademics’’ (academic practitioners), but also by consulting firms like the Boston Consulting Group (BCG) who are the bridges connecting entrepreneurs and financiers. Financial Institutions now use ESG (Environment, Social and Governance) indicators in their evaluation criteria for green or sustainability financing.

Moreover, there is a radical shift in the way they operate: “The EU’s sustainability criteria impact every level of a financial institution’s organisation, from the management down to the risk management, compliance and customer-facing units. It therefore makes sense to take a holistic approach to the issues raised by sustainable finance. A number of specialist banks have already taken note of this necessity and placed sustainability at the heart of their economic activities. Market participants which do not specialise in sustainability now also need to focus their efforts on the matter.” (Source: PwC- Sustainable Finance)

People, Planet and Profit

It is increasingly evident that business for profit only will gradually fade into oblivion as the climate crisis becomes more potent with dangers for the planet and human survival, and BMfS will over time become the norm for business evaluation in general. This has great significance for those engaged in regenerative agriculture, who will be at the forefront to win over this enduring battle. “People, Planet and Profit” will be the new motto for businesses to create a sustainable world which is more bearable for the planet and people, more viable for the businesses and the environment, and more equitable in terms of income distribution. This is illustrated in Elkington’s Triple Bottom Line model in Figure 2.

Figure 2: Elkington’s Triple Bottom Line Model. Source: Internet

The Flourishing Enterprise Movement is committed to “by 2030, empower a majority of enterprise leaders worldwide to shift their mindsets, change their behaviours and innovate according to a new definition of integrated business success. This is a world where companies excel, people flourish and nature thrives, achieving the UN Sustainable Development Goals and beyond to flourishing.”

With the publication of the UN-IPCC report, the world woke up to the stark reality that the earth is fast moving towards a point of no-redemption, and in some respects have already incurred some irreversible damages. Agriculture, in no insignificant way, is responsible for the climate crisis and loss of bio-diversity. Importantly, it is producing food unfit for human consumption. Regenerative agriculture is borne out of this intense desire to save the planet by restoring the soil to a healthy state in order to produce the right food for the people. This battle for survival has to be embraced by the financial institutions and the business community so that capital flows are redirected where they are most needed. It also requires innovative business models and a new economic paradigm which promote people and planet rather than profits alone, and see this as source of competitive advantage.

For eons, the farming community has been robbed of its dignity, has become the most vulnerable people in an extractive economic system, and deprived of the nobility of feeding the world. The regenerative movement should make farmers take the central stage in this battle for human survival.

Deva Armoogum
Deva Armoogum former KPMG Advisory Partner and former Chairman of MioD, is the owner/manager of Dreamland Farm, a permaculture agripreneurship.