Why impact investors must hedge against planetary risks
An introduction to investing in regenerative cultures and communities
Enormous changes are underway on our planet, and no one knows for certain where they will lead. Uncertainty and risk shadow our path forward.
Even so, there’s reason for hope.
In this article, I will share new ways for impact investors to achieve these goals:
Earn risk-adjusted returns that meet their financial objectives
Deliver long-term impact they can measure
Hedge against the risks of uncertainty
What planetary risks do we face?
I assume you’re aware of the many crises we face. If you prefer not to dwell on the crises, don’t worry. That’s not the main point of this article.
But for clarity, let me briefly list the risk factors I’m thinking about in the context of this article. They include air and water pollution, food insecurity, growing scarcity of freshwater, loss of biodiversity, climate change, energy transition, mass migration, political strife, economic instability, and war.
These crises are all of our own making. They arise from human behavior and are the direct result of our dominant cultural, social, and economic systems.
Today’s crises are on a scale humans have never experienced. Acting together, they could collapse civilizations that now seem durable. The crises could cause the extinction of millions more living species, including our own.
The incompleteness of our current science is no reason to dismiss or disregard these risks.
In fact, our current knowledge may underestimate the risks. For instance, scientists reported in 2024 that the oceans are warming much faster than their recent models had predicted. We may surpass tipping points sooner than scientists thought possible.
The changes we face are not likely to be gradual or linear.
Some will probably be irreversible for millennia or longer. Once we cross some tipping points, they may trigger others.
One solution holds more promise than many others
Hope and realistic optimism are more effective than resignation or despair.
We already have the technology we need to reduce or eliminate many of our current crises in a few generations. We don’t have to wait for new technologies in order to achieve remarkable improvements.
Hundreds of possible solutions compete for the attention of investors.
To varying degrees, most of these initiatives offer legitimate and potentially effective ways to alleviate at least some of our crises. But I believe their effectiveness will be limited to the extent that they do not eliminate root causes.
So what can shrewd impact investors do now?
Our best choice, I believe, is to invest in a future where people on Earth can live in ways that restore the health of our planet instead of depleting it. I know this broad goal may seem amorphous, so I’ll be more specific in a moment.
Our best hope for the future lies in regenerating Earth
Regeneration is a natural, biological, and physical process through which living systems restore and revitalize ecosystems, biodiversity, and natural resources.
The process enhances the health, function, and resilience of ecosystems so they can thrive and maintain their vitality indefinitely.
How is regeneration different from sustainability?
The two terms are closely related and often arise in the same context. But they differ in important ways.
Sustainable activity maintains the operation of systems over the long term, without depleting the resources that keep the systems working. It avoids behavior that destroys, depletes, or diminishes the long-term viability of ecosystems, societies, or economies.
Sustainable behavior is the minimum standard we humans must meet for our long-term survival.
Regeneration takes a crucial step beyond sustainability because it enhances the health, resilience, and biodiversity of natural environments.
Today we are far from achieving either sustainability or regeneration on the scale we need to survive on Earth.
A real solution will require enormous physical and social change
Among those who truly understand the size and complexity of the interrelated problems we face, no one expects fast, easy, or inexpensive fixes.
No single solution will solve all the problems at our doorstep. Most of the possible solutions under consideration today will only mitigate or alleviate symptoms. To get at the root causes of our current situation, a broad range of diverse solutions are worth considering and funding.
To achieve a transition of this size and scope will require us to replace or upgrade much of the physical environment and infrastructure humans have built, going back hundreds of years.
Yet is even more important to change deeply rooted mindsets, cultures, behaviors, and institutions.
Our best hope lies in regenerating Earth
Regeneration is a natural, biological, and physical process through which living systems restore and revitalize ecosystems, biodiversity, and natural resources.
The process enhances the health, function, and resilience of ecosystems so they can thrive and maintain their vitality indefinitely.
Regeneration can directly or indirectly solve the climate crisis, clean up pollution, deliver safe and abundant food supplies, reduce or eliminate migration, deliver renewable energy, reduce water shortages, increase biodiversity, and increase economic resilience. By delivering these and other benefits, regeneration can also reduce many of the pressures that drive countries to war.
How can we regenerate nature?
Some writers about the topic of regeneration note that it is not something humans do to nature. The living world regenerates itself naturally. Human behavior often disrupts its processes.
So how can our actions promote or enhance regeneration?
First, we can and must stop doing things that decrease nature’s ability to regenerate itself. Since the time of ancient Greece, physicians have taken the Hippocratic oath to “first do no harm.” Societies must commit to the same ethic in our care of nature.
Second, we can commit to living regeneratively. This means living in ways that facilitate or enhance natural the processes of regeneration.
To live regeneratively is more ambitious and transformative than simply to live sustainably. It’s a commitment to active environmental and social stewardship that enables systems to thrive, not just to survive.
I believe a transition to regenerative living will eliminate many of the root causes of our current crises.
Specific activities can enhance natural regeneration
We can enhance the processes of natural regeneration through several human activities. The following are among more than a dozen that enable and speed up the process of natural regeneration:
Adopt regenerative farming.
Reestablish forests and planting new ones.
Restore habitat for plants, animals, insects, and microorganisms.
Conserve and manage water.
Restore the health of soils.
Regenerative culture and community enable regeneration at global scale
How can we encourage and support regenerative living on a scale broad enough to reduce or mitigate the many risks that threaten our existence?
To do so, we must adopt ways of living regeneratively as a daily habit, by establishing and promoting regenerative cultures.
Regenerative cultures are an essential element of the transition. They are the vessels through which societies instill their values, norms, habits, and expectations for acceptable behavior. As such, they are among the most powerful agents in promoting social change.
But cultures tend to be profoundly conservative. They can also block or slow social change.
This is why we must develop effective ways to influence the world’s main cultures to adopt the kinds of regenerative values the world needs for humans to survive.
Why do we need a new kind of culture and community to enable regenerative living?
We must establish new cultures because our current dominant cultures make regenerative living all but impossible.
Our cultures are based on a relentless drive for economic growth, even if the growth exhausts Earth’s resources. In our current culture, we need population growth to feed economic growth, even though population growth endangers the health of our planet.
Our dominant cultures are based on the notion that we humans are lords of our planet and are free to extract value without concern for repairing our damage or replenishing the resources we take.
Our dominant cultures generate high levels of waste through needless consumption. Much of that waste shows up as pollution of air, water, and land.
Many dominant world cultures encourage individualism, competition, and selfishness.
Realistically, we are unlikely to change these cultures enough to eliminate the causes of our current crises. So we must create alternative cultures that people can choose to join when they see how well the new cultures thrive.
Note that I use the word cultures here in its plural form. The plural suggests the solution is not to create a single, homogenous regenerative culture. Rather, the solution is to establish an appropriate diversity of regenerative cultures. Nature thrives through diversity and redundancy, and so must we.
How can impact investors change cultures?
As an impact investor, you may feel the topic of cultural change is unfamiliar or unsettling.
Your family office probably invests in preferred, proven asset classes. So how can you suggest that they consider investing in culture change?
Fortunately, a new kind of investment is emerging. It enables you to fund culture change by continuing to invest in asset classes that are more familiar and comfortable.
I’m talking here about regenerative communities, which are the physical embodiment of regenerative cultures.
They are settlements, towns, villages, and cities with locations you can pin on a map. They consist of land, housing, physical infrastructure, technology, commercial buildings and businesses, food production, energy systems, and much more.
Among their intangible assets, regenerative communities also harbor and nourish cultures and social systems that enable, encourage, and reward regenerative living at scale.
How impact investors can help
The world will need mind-boggling amounts of capital to transition to regenerative living on a global scale.
Enough money is available to succeed in transforming the world, but for many reasons, governments can’t and won’t fund the transition alone. Much more money must come from private sources of capital. And that’s where impact investors can play a pivotal role.
By working together, public and private sources of money can invest enough to solve the world’s crises in a few generations.
Impact investors can help avoid the worst scenarios for the future and still earn acceptable risk-adjusted returns on their investments.
And they can make those investments in ways that hedge against the many risks we all face.
What do regenerative communities look like?
Regenerative communities are likely to display the diversity of the regenerative cultures that create them.
Even so, they share several consistent traits.
Working with the distinct physical and biological assets of their locale, regenerative communities preserve and enhance their natural environment. They integrate a sustainably built environment with the ecological, social, and cultural aspects of their place.
Regenerative communities create cycles of mutual benefits that enhance both nature and the community.
Why we need ‘skunk works’ for developing and testing alternative cultures
I think of regenerative communities as skunk works. They are small-scale, experimental, and entrepreneurial projects for developing and testing transformative models of social organization.
Skunk works enable fast, inexpensive experiments on a manageable scale of relatively low cost and risk.
By providing scalable and replicable models, regenerative communities can help light our path toward a sustainable future.
Why should impact investors consider funding regenerative communities?
Even if your family office is not currently committed to investing in regenerative initiatives, you might consider such opportunities for these reasons:
They can offer favorable risk-adjusted financial returns.
They can enable investors to achieve long-term impact.
They enable you to invest in multiple familiar asset classes, along with several new ones.
They provides opportunities to hedge against the growing risks posed by the uncertainties we face.
Why do investors need hedging strategies?
Investors—even more so than most other people—hate uncertainty and try to avoid it.
Yet our current global uncertainties are unavoidable. Impact investors can’t reasonably hope to keep their powder dry until these crises “blow over” like a storm cloud.
The complex mix of global challenges we face are not going away in the same way recessions and other economic crises do. Our crises are consequences of our cultures, and they will not dissipate until we change the cultures that caused them.
In this situation, the best option is to continue investing and to deploy effective hedging strategies.
In a future article, I will share how impact investors can use hedging strategies by investing in regenerative communities.
Here’s a teaser for that article: To succeed, investors must learn to invest in systems rather than in isolated projects or asset classes as many do now. I’ll explain what that means and how to do it.