The notions of “alt-right,” “alt–National Park Service,” and other similar concepts, along with the idea of “fake” news, recently got me thinking about my own work, and about how there’s something edgy, subversive, and radical about investing in soil. As the field of impact investing grows by the day and the dollar—becoming nearly mainstream—I find myself feeling increasingly separated from this practice. Ostensibly, we at Cienega Capital call ourselves regenerative investors specifically to make this point. It’s not about doing things in the same way just a little less poorly, but rather it’s about turning the concept on its head with the hope of achieving systems change. To do that, we must reexamine some of the assumptions in that system, such as the inalienable right of investors to make as much money as they can, and the use of “market returns” as a benchmark for successful investment.
To give you a sense of how I got here, rewind to 1996. I first started getting interested in how money worked when I was living abroad in central Asia. I lived and worked near the Aral Sea (or at least where it used to be)—one of the worst “ecological catastrophes,” as the locals put it. It’s an interesting story if you ever want to look it up. In a nutshell, the sea has shrunk by about 70% due to poor water-management practices occurring during the Soviet era. After the Union of Soviet Socialist Republics dissolved, an influx of multilateral and foreign aid came from Europe and the United States. Enormous amounts of grant money flowed into Uzbekistan, a country that previously never had known philanthropy or a nonprofit sector. This had a corrupting influence on the people and their society. I wanted to believe there were better ways to use capital to solve these environmental, social, and human problems, so I set off to find out what those were.
Fast-forward to 2006, when I began working with social enterprises as the director of lending at RSF Social Finance (RSF). As a lender, the company was only one part of the capital stack for these enterprises, but the other layers impacted it—particularly when company performance was less than stellar. I was surprised to find that RSF often had to mediate between the financial stakeholders. Investor behavior in many situations revealed conflicting objectives among parties and, in my view, called for capital that had more realistic and flexible returns. I found that the damage being done—the demoralization of people and the necessary sacrifices made to achieve mission objectives, all for the sake of growth—was not worth the financial return.
In 2014, I started working on direct investing with Sallie Calhoun, who opened my eyes to the essential role of soil in our ecology and particularly in the carbon cycle. Having worked with many packaged-food and beverage companies, I found that it was very different to work with farmers, ranchers, and closely related enterprises. Their connection to this sense of balance among the financial, ecological, and human was instinctual and profound. When I described my investment philosophy to them, they got it immediately. Then I knew I was working with the right group of people.
The necessary balance of financial, ecological, and social returns is most evident and critical to success when working with nature and the land. If something is out of whack, you notice it almost immediately. In many other industries, such imbalances are externalized and anonymized to the point that they no longer are noticed. We’re starting to wake up to this as climate change is reaching the point of no return, but we still don’t always make the connection to the way we do business.
I know there are different camps in the investing world. Some investors say that you don’t have to sacrifice returns for mission—and, in fact, you even can achieve outsized returns. Others say that returns must be sacrificed to achieve impacts. In my mind, this debate is garbage, and only reveals that the impact investing industry still elevates financial returns over everything else. Ecological and social returns are sidelined as “impacts.” We instead should be talking about holistic returns, in which all aspects are balanced. Having achieved “market returns” by degrading environmental resources and stripping wages and wealth from people, we might need to experience a period of negative financial return to restore the ecological and human aspects of our system. I’m not saying that all investments should have a negative return, but perhaps some of our portfolios must net a negative return to achieve balance.
How does this look for us on a micro level? Some of the entrepreneurs in our portfolio do very well because they foster a healthy and balanced context, and the financial return also is healthy, although it perhaps still could be considered “below market.” In other areas, a lot of innovation is still needed, which means that we take an R&D approach—we spread investment across a number of models knowing that some (most?) of them will not succeed. The models that do succeed have the potential to bring significant change to their industries.
Cienega Capital’s philosophy is to bring the right type of capital to companies and organizations that understand the land stewardship practices needed to create healthy soil. This can range from a grant for a farmer-assistance program to a program-related investment for a permaculture-based social-justice organization, an equipment loan for a sheep farmer, or an equity investment in a grass-fed beef company. This approach muddles returns, and some people will say it’s not an institutional investment approach and will never scale. But that’s the idea. We don’t need to scale some huge investment vehicle—we need a thousand people (or more!) to invest this way. We call this method of investing, and the call for more investors to do it, the “No Regrets Initiative.”
Ultimately, our goal is to be able to look at our portfolio and be able to say that it’s a “beautiful portfolio.” That definition might be different for everyone, but we’d like it to indicate that we’re moving toward a healthy picture of agricultural soils across North America.