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Is a Regenerative Economy the Natural Evolution of Capitalism and the Answer to the Climate Crisis?

15 minute read

According to Darwin’s Origin of Species, it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself...

Megginson, ‘Lessons from Europe for American Business’, Southwestern Social Science Quarterly (1963)

Thousands of acres of the Amazon rainforest, the lungs of the Earth, are currently going up in smoke. Millions of acres are also currently blazing in California, Siberia, Washington, Oregon, Canary Islands, Greece and Portugal. Earlier this year, the UN released a chilling report, compiled together with 250 scientists around the world stating that if nature keeps declining at the present “unprecedented rate”, the Mass Extinction of 1,000,000 species is scheduled for year 2050: The current global response is insufficient and transformative changes are needed to restore and protect nature. Opposition from vested interests can be overcome for public good.  In other words, if we don’t get our act together now, it’ll be game over soon.

The good news? A big part of the business world is. It has dawned on many that the time for preaching sustainability is over; just doing “less harm” won’t cut it anymore. We have to restore and renew our environment, our economies and ourselves.

Many big business players are taking the matter into their own hands, putting Sustainability on top of their agenda, with excellent results in terms of revenue too. Europe’s 7th most valuable company, Unilever, increased returns by 300% when it switched to a sustainable goals agenda.

In his EDIE Awards acceptance speech, eminent businessman Paul Polman underlined the need for us to step from Fear to Courage. A word, he reminds us, that comes from the French “Cour”: “Time has come for us to balance between Heart and Mind” he says, referring to the fact that businesses’ agendas should respect society’s needs and be a “force for good”.

At the moment, the need to re-design a system which is collapsing is pressing. But is a worldwide corporate sustainable agenda going to suffice, considering the scale and the trans-sectoral nature of the crisis we are facing?

What’s going on: the Science behind the Global Crisis

Unless we want to bring on the annihilation of our own, other species and the whole Planet, there are 9 environmental boundaries we need to respect. These include well-known terms such as climate change, the ozone layer, and biodiversity… but also refer to concepts you may not have come across in everyday coverage of the climate crisis, including Ocean Acidification, Atmospheric Aerosol Loading, Land System Change, Freshwater Consumption and Nitrogen and Phosphorous Flow.

Without going into too much detail, the “Planetary Boundaries” framework is important because it is the first of its kind to define what constitutes a safe operating space for humanity, or the environmental limits humanity needs to operate within in order to avoid threatening the resilience of the Earth.

It was initially developed in 2009 an independent, world-leading science centre, the Stockholm Resilience Centre, together with scientists from the Australian National University, employing cutting-edge technological analysis from transdisciplinary techniques.

Just like the members of any sports team, when playing together, the 9 different components of the Earth system are functional when in a healthy state of balance. The 1 minute video below explains the framework quite nicely.

Johan Rockstrom explains the Planetary boundaries Framework

Scientists say we risk destabilizing (and eventually crashing) the whole system. We have already crossed four out of the nine boundaries, two quite severely (Biosphere Integrity and Biochemical Flows) and another two (Climate Change and Land System Change) have been pushed over into the “increased risk zone”.

Nevertheless, there is some good news:  the layer of Ozone above Antarctica, which we had depleted, has been constantly recovering since action was taken to counteract the human-made damage. This was achieved by prohibiting the use of the harmful chemical gases that were causing the problem, leading onto the fundamental issue behind the current climate crisis: it is a man-made crisis. 

Human industrial activity, in fact, has been the main drive behind climate change since the 1950s; changes in our ecosystems have occurred more rapidly in the last 70 years than at any time in human history, because of the emissions our industries produce… essentially because of our way of living.

The graph shows the increase of Carbon Dioxide (CO2) emissions into the atmosphere, one of the main “culprits” of the climate crisis, from the use of fossil fuels and cement production.

If the habits and practices we’ve been cultivating since the Industrial Revolution have become the main driver of a global environmental crisis, then surely a change in habits can help reverse the damage? After all, if irresponsible Capitalism and industrialisation created the ecological and social crises we are now facing, might it also have the tools to resolve them? I will try to answer this question shortly. But, before doing so, it is important to know what has led Homo Sapiens, the man who knows it knows, to the brink of a collapsing planetary civilization.

How did we get here? The fundamental flaw in modern economics

According to Joe Brewer, change strategist, cognitive scientist and complexity researcher, the methodology that lead to our current understanding of the economy is fundamentally flawed.

The first pillar of our current economic model was erected during the 1700s Enlightenment, when eminent members of our species started transitioning from philosophical inquiry to empirical observation. Regarded by many as the Father of Modern Capitalism, Adam Smith is deemed to have been one of the first to observe human behaviour and how it sparked societal customs, ethics and organization. (Yes, he’s the guy nonchalantly posing on the back of a twenty pound note.)

However, it wasn’t until the end of the 1800s, with individuals such as John Maynard Keynes, that scientific methods were incorporated into economics. The tools available at the time were taken from statistical physics or thermodynamics.

What is clear is that exponential growth, in a Planet with finite natural resources, is impossible. 

These branches of science dealt with the study of parameters such as temperature, pressure and density.  Whilst at the time these methods were apt for studying inorganic matter, what the economists of the time failed to take into account was that human society cannot be likened to bulk measures of the statistical properties of atoms. It is highly inaccurate to take methodologies that study inorganic matter and apply them to living systems such as the Earth system and Human societies.

The first 50 years of the 1900s then saw the advent of macro-economics, that is, the start of large-scale data collection for observing general patterns and creating governing policies. In this Mechanistic Model, societal operations are calculated using calculus methods such as Linear Equations. However, modern society is in fact a complex, non-linear system which can be understood through higher computational models which produce “estimates’, not linear outcomes.

We can forgive our predecessors for not having the insight into what a complex, non-linear process the economic system would become. And seeing that we do now have an understanding of what a complex system is, and we also have developed the statistical/computational tools to manage and regulate it, our responsibility lies not only in reversing the damage already caused, but also in implementing a model that will allow all aspects of our system to thrive. What is clear is that exponential growth, in a Planet with finite natural resources, is impossible. 

Would it be far-fetched to think that the culture that has brought us to our knees can give way to a more evolved and prosperous model that can benefit all? The answer to this question might lie with a concept which has governed our existence since the start of time: Regeneration.

Regenerative Capitalism: A Theoretical Framework

Brewer’s explanation is supported by John Fullerton, one of J.P. Morgan’s former managing directors, who goes as far as saying that we are running the world on a bankrupt theoretical construct.

Fullerton advocates for a new type of Capitalism, based on the understanding that the financial system and the economy will not be able to survive if society collapses and the biosphere is depleted. Hence, the main foundation of the Capitalist Regenerative System is the recognition of the State of Interdependence that exists between all independent entities of human society and the environment. 

If the environment goes out of business, so does society and business

 J. Fullerton, former J. P. Morgan CEO, Author of “Regenerative Capitalism

Although this state of interconnection is a value on which all native, indigenous cultures around the world have been based since time immemorial, it seems like the most “developed” part of the world is only catching on now. Better late than never!

The Oxford Dictionary defines Capitalism as an economic and political system in which the country’s trade and industry are controlled by private owners for profit, rather than by the state. By “profit” this definition indicates monetary returns or revenue generated from “trade” and “industry”.

Regenerative Capitalism differs from the traditional model of capitalism in that it is based on a “blended value model”, where the capital produced is not just material or financial, but equally social, ecological, intellectual, spiritual, cultural and experiential. 

Firstly, free enterprise needs to be subjected to the natural laws of physics and hence recognise that infinite, exponential material growth is not possible. Any activity carried out needs to recognise, respect and adapt to the constraints of the natural environment; this is the fundamental principle of a systemically healthy society, i.e The planet is our partner (Paul Polman, former Unilever CEO). 

Secondly, every free enterprise needs to operate in synergetic collaboration with other free enterprises. This is in line with much of what other branches of science have been aiming at: moving from a deterministic, reductionist approach to a whole-system view approach (what one might call holistic).

Much like the human body needs to keep a constant flow of blood, for instance, from central organs to the periphery in order to function in a healthy way, money and resources need to circulate from the centre to the periphery of society for the whole economic system to thrive.  

Fullerton says that a Regenerative Economy is based on the assumption that economic strength is a consequence of societal vitality, which is rooted in ecological health, the opposite from what is taught in Economics 101 and the mainstream Economic knowledge our global system is based on today. 

Alternative measures to GDP when estimating prosperity and progress.

Essentially, the Regenerative Business Framework asks us to modify centuries of bad habits. Just like we have been shifting from Shareholder to Stakeholder Capitalism, Entrepreneurs now need to shift from the “Exploiter Mindset” to the “Nurturer Mindset”.

The Nurture Mindset is the only one apt to facing the systemic challenges we are confronted with today. It is based on values such as Collaboration, Interdependence and Communication.  The aim of employing these values as we re-organise our societies is to create Shared Prosperity, which is durable and accessible by the entire system, the Planet included. In fact, in this model, the Natural World is a Stakeholder, not a passive entity to be exploited, but an active beneficiary of the economic and social system our species decides to create. This is the theoretical Essence of Regeneration.

Fullerton envisions human creativity as being the key to transforming our societies and economic system: “When a firm makes decisions in its short-term interests, those decisions often have negative long-term impacts on the systems of which it is a part, and therefore on its own long-term success and even survival.”

Why is this transition so important for businesses?

According to the World Economic Forum, more than a third of the risks likely to threaten large economies (i.e. countries and corporations) within the next ten years are classified as environmental and social risks arising from the damage we have done to our biosystem. The above figure shows the high-likelihood, high-impact risks quadrant.

So what does it look like in practical terms? Take a look at our Patagonia Case Study as part of our Regenerative Capitalism in Action Series.

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