Editor’s note: Logan Yonavjak and Adrian Rodrigues are managing directors at Provenance Capital Group (PCG), a San Francisco-based financial services firm that focusses on allocating capital into regenerative natural resource investments.
The views expressed in this guest article are the authors’ own and do not necessarily represent those of AFN.
We have all heard of IQ, otherwise known as the intelligence quotient. This concept was adapted and first published in 1916. It was intended to be a measure of a person’s relative intelligence according to reasoning and problem-solving abilities.
At one time, IQ was considered a prime determinant for mainstream success. Along the way, some psychologists felt that IQ was too narrow a measure of someone’s ability and proposed the idea of multiple intelligences.
Many of these ideas were explored in Daniel Goleman’s early 1990s work, ‘Emotional Intelligence: Why It Can Matter More than IQ,’ where the author posited that emotional quotient (EQ) can be just as, if not more, important than IQ.
To put it simply, Goleman believed that IQ may get you the job – but EQ can help you keep it.
As it becomes increasingly apparent that we need to solve global issues like climate change by building circular and carbon neutral economies, it is clear that we need a more holistic measure of intelligence to make this transition. This measure is what PCG is calling the regenerative quotient (RQ).
First off, what is ‘regenerative’?
The Capital Institute has codified eight principles of regenerative capitalism. In short, they are:
- Right relationship;
- Viewing wealth holistically;
- Seeking balance;
- Empowering participation;
- Honoring community and place;
- Edge effect abundance;
- Robust circularity flow; and,
- Being innovative, adaptive, and responsive.
Though none of these are new ideas, holding these principles in mind when making hiring and business decisions requires a paradigm shift, and practice. The simplest way to think about it is that the old model of business is linear and extractive; we took a lot from our systems to get us to this point in our global economy. That required high IQ and some EQ. But our systems are quickly falling apart, which has been shown through symptoms like climate change and severe inequality.
There are no silver bullets or band-aids that can fix our linear and extractive economy. However, we do know we have to switch quickly to an economic design that is both circular and regenerative. The term ‘regenerative’ is holistic and considers the circularity of systems – how can we design everything to feed back into itself and enhance other parts of the system? And how do more people benefit in the process?
At PCG, we are focussed on transitioning our industries from an extract-and-deplete paradigm to a restore-and-sustain paradigm. Our firm is helping set up the financial infrastructure to allow capital to flow specifically into rebuilding our food and agriculture systems.
One way we realize this mission is by serving as the regenerative economy’s investment bank, whereby we help entrepreneurs working across the value chain to prepare for, and attract, impact capital. Backed by a family office in the US Midwest, we are also building an investment advisory business to advise family offices, high net worth individuals, and charitable foundations on how they can start designing and transitioning to regenerative asset allocations – whether through funds, or direct deals.
As we vet clients, interns, or full-time hires, we are evaluating whether the team or individual has a high RQ. If we are going to solve the most pressing problems of our time, all of the players in our economy ultimately need a high RQ – at the investor level, at the company level, and at the individual level.
Why ‘regenerative’ and not ‘sustainable’?
We need approaches that enhance, instead of extract from, ecological and social systems. ‘Regenerative’ goes beyond ‘sustainable’ because we need to restore many of our degraded systems before we can sustain them.
How does this apply to agriculture?
Regenerative farming practices draw from a range of traditions and techniques, including indigenous land management, permaculture, biodynamic farming, and so forth. Indigenous communities all over the world have been practicing regenerative agriculture for millennia. Examples of regenerative agriculture practices include cover cropping, no tillage, and fundamentally improving soil to hold nutrients and water.
At this point, only a small percentage of land in the US is managed using these approaches. What’s at stake if we don’t shift more quickly?
The UN predicts that if we don’t change our agricultural practices, US farmers will only have 60 years of harvests left before our country’s soil is barren. The Croatan Institute’s Soil Wealth Report estimates that the transition away from industrial to regenerative agriculture will require over $700 billion in investments.
But this isn’t all bad news. We can decide to work with nature. If we do that, we have an opportunity to mitigate 170 gigatons of carbon emissions while generating a nearly $10 trillion net financial return, according to the Soil Wealth Report. In order to get there, we need leaders in the food and ag space with a high RQ to make this transition possible and effective.
At PCG, we’ve learned some tips along the way that can help guide leaders as they think about building or investing in companies with a high RQ. Here is a general framework and a few sample guiding questions to consider:
Impact-oriented business concept
- Does your company address a specific and important problem for target customers?
- How is the company going to maintain its mission over time? (eg, has it adopted a legal framework that preserves its mission over time and considers stakeholders beyond just shareholders?)
Team structure and experience
- Can the management team clearly articulate their strategy and how its products or services are part of a circular system?
- What is the intent behind the creation of the business beyond profit alone?
Diversity, equity, and inclusion
- Is the company thinking about embedding diverse perspectives throughout the business structure?
- How are employees incentivized? Are there ways for them to participate in the upside if the company performs well? Are incentives tied to holistic outcomes?
- Does the business product or service support underserved populations?
Products and services
- Does the company’s product or service development process build in continuous learning cycles to ensure that the company has its finger on the pulse about customer needs?
- Does the company employ circular design to limit waste and ensure that old materials are recycled into new products?
Community
- Does the company have a stated mission to hire local, or build local wealth?
- If the business is appropriating intellectual property and techniques from communities, how will it compensate those communities for this knowledge?
Capital sources
- Is the capital structure aligned well with the goals of the business?
- Who is profiting most from the upside if the company does well?
High RQ businesses
We are currently working with two companies that we feel embody a high RQ.
White Leaf Provisions is a family-run business with an online platform, and B2B sales through various retail channels, of regeneratively and biodynamically farmed products. It’s the first 100% regeneratively farmed, biodynamic, organic, and GMO-free baby food line to retail in the US. Its sourcing is based on practices that naturally improve or restore systems, rather than extracting. By sourcing from the producers that are committed to these practices, it is building more regenerative demand, which helps build the case for farmers to transition to regenerative practices.
We are also working with Encina Farms, a pork producer that specializes in Iberian pigs, which the famous jamón ibérico comes from. It is looking to expand its operations in California — which has a similar climate to the region in Spain that the pigs are traditionally raised in — purchase land directly, and build out a broader suite of product offerings.
Despite growing interest in soil health & carbon farming, climate tech needs more investment. Read more here
Encina Farms is among the first outside Spain to raise Iberian pigs using regenerative practices. The animals are released into oak woodlands after 10 months of age to forage for nuts, herbs, mushrooms. They receive no hormones or antibiotics and are finished on a diet of acorns to ensure high quality flavor and nutrition standards. Raising pigs in this fashion helps preserve the endangered California oak woodlands, and rejuvenates the land.
Like any living framework, we believe that attaining a high RQ is something to continuously strive for – and by no means is it a static snapshot. We would love to continue to iterate on this concept and hear examples about regenerative companies across the value chain. If you have any initial feedback on this concept or good examples of RQ, please let us know at [email protected].
