For every $100 in wealth held by white households in the U.S, Black households hold only $15, according to the U.S. Federal Reserve’s 2022 Survey of Consumer Finances.

‘Centuries of discrimination in public policy, financial practices, and societal norms that limited Black wealth accumulation have not been overcome, and will require broad structural changes to rectify the long-lasting impact of inequality,’ according to the Brookings Institute, a U.S. non-profit organisation, commenting on the report.

That’s a clear call for all sectors to play a role in addressing the yawning racial wealth gap. And over the past few years, activists focused on the issue have urged philanthropic funders to take a number of steps: Fund organisations that are led by Black, Indigenous, and people of colour (BIPOC) which serve BIPOC communities; work collaboratively; shift power and build trust relationships; check for barriers you’ve created. And most recently, play an active role in reparations for Black people.

Yes! Those are all good and necessary practices. That’s why I advocate a framework that integrates them all into one strategy: regenerative finance.

This approach is already gaining currency in the impact investing world: Boston Impact Initiative Fund, Candide Group’s Olamina Fund, and the organisation I work for, RSF Social Finance (a lending, giving, and investing non-profit based in San Francisco), are among those practicing regenerative finance. If widely adopted by philanthropic funders, regenerative capital strategies could catalyse real progress on economic justice.

How regenerative finance works

Regenerative finance uses financial and social capital as a tool to solve systemic problems and regenerate communities and natural environments. It has four pillars: integrated capital, equitable deployment, trust relationships, and holistic analysis.

Higher Purpose Co team Credit: Trent Calvin Photography

Integrated capital is a financing structure that blends various types of capital (grants, loans, loan guarantees, technical assistance, network connections, and more) to give social enterprises, community-led projects, and restorative cultural and environmental initiatives funding that is tailored to maximise their success.

Equitable deployment means rebalancing the economic scales by not only expanding the universe of people funded, but also reforming the funding process to eliminate structural biases and invite stakeholders into decision-making roles.

Building trust relationships is a core element of regenerative finance because the strategy is a collaborative and experimental endeavour that requires trust among partners. The principles of trust-based philanthropy apply here.

The fourth element, holistic analysis, means making sure grants and investments are based on a systems perspective that accounts for interlocking causes and effects. This element undergirds the whole approach.

Recycling gift money

Some foundations already are using integrated capital as a PRI (Program-Related Investment) strategy, and it can and should be expanded to grant-making as a way to multiply the impact returns on gift money.

For example, recoverable and non-recoverable grants, paired with technical assistance, can improve grantee success rates while replenishing program funding. No or low-interest loans and loan guarantees also recycle funding and can fund for-profit as well as non-profit social enterprises. That’s one way to reduce inequities in the for-profit funding system and help under-resourced communities build wealth.

‘Foundation and individual wealth have been built largely through extractive practices that pull natural and capital resources out of communities, leading to environmental harm, social and economic injustice, and unbalanced systems.’

One way RSF has deployed integrated capital is through its philanthropic funding collaboratives, including the Racial Justice Collaborative (RJC). Launched in 2021 with racial justice–centred partners, the RJC provides early, customised financial and network capital to BIPOC entrepreneurs and initiatives. The RJC’s creation recognises the fact that due to structural racism woven throughout the finance sector, BIPOC-led organisations face much higher hurdles than their white-led counterparts in accessing capital across the funding spectrum.

How impact investing creates community returns

The RJC assesses impact based on what the money and support can do for communities. It initially made grants to four organisations that are dedicated to creating community wealth and ownership.

One recipient was the Black-led Higher Purpose Co, a Mississippi-based economic justice non-profit that works to build community wealth with Black residents by supporting the ownership of financial, cultural and political power.

RSF first supported Higher Purpose Co in 2020 with a loan guarantee from the Women’s Capital Collaborative, which enabled it to increase lending to Black women entrepreneurs. The $50,000 RJC grant expanded that support by contributing to a $1 million headquarters designed to serve as a hub for farmers and artists in Delta.

Another grant went to The East Bay Permanent Real Estate Cooperative, a community real estate developer that supports BIPOC communities’ access to land and housing. The RJC grant contributed to the launch of a project that is reactivating a historic Black arts and business corridor in West Oakland, California.

Social capital is a key element of regenerative finance

Providing network resources can be as important as providing money. Entrepreneurs and organisations that don’t have equal access to financial capital often don’t have equal access to high-resource networks either. Integrated capital may include technical resources for an individual or support for creating a collective structure where people and organisations can learn from each other, share resources, and build their own community network.

‘Look for a fund that focuses on equity and parity, and provides mentorship, coaching, and other educational resources to help entrepreneurs and organisations succeed.’

For example, the Southern Black Farmers Community-Led Fund, a donor-advised fund within RSF brings together six organisations working in Black farming communities in the U.S. Southeast. It distributes funding without direction from the donor (a trust-based approach). Building on the region’s rich history of cooperative development, participants devised a collaborative approach to assessing opportunities and needs, working on solutions, and distributing funding.

This farmers’ fund operates on the belief that the food economy, anchored by Southern Black farmers, is a powerful site for community wealth building and wellbeing. Each of the six organisations has received grants to develop Black leadership in agriculture, assist farmers in retaining and expanding their land, provide technical assistance and more. One of their main goals is to address the massive challenge of transferring land, wealth, and knowledge from retiring baby boomers to younger generations.

Getting started with regenerative finance

Regenerative finance might sound complicated, but it’s accessible to any foundation or any individual with a donor-advised fund.

The simplest way to get started is to contribute to an established integrated capital fund with a regenerative framework. Look for a fund that focuses on equity and parity, and provides mentorship, coaching, and other educational resources to help entrepreneurs and organisations succeed. It should include stakeholders in decision-making and have partnerships with organisations embedded in the community. And it should evaluate impact in a way that reflects the long-term commitment that this kind of work requires.

The other option is to create your own regenerative finance fund. Trust relationships are central to this effort: Getting a regenerative finance fund off the ground requires a significant effort to understand partners’ values and goals—and to ensure they align with yours. It’s also essential that at least some partners are rooted in the community you want to support.

Undoing the harm created by foundational wealth

Foundation and individual wealth have been built largely through extractive practices that pull natural and capital resources out of communities, leading to environmental harm, social and economic injustice, and unbalanced systems.

For those wondering how they can undo that harm, regenerative finance is a good start. With its holistic approach, it’s suited to addressing systemic problems. And with its emphasis on collective action, equity, and community leadership, it can start to shift the scales toward long-term positive change.

Erika D. Williams was vice president of integrated capital at RSF Social Finance until  March 2024 and is an adviser to the Racial Justice Collaborative.