Nov 30, 2022
The myth of the regenerative business model
This is the time of regenerative business models, at least according to the interest a growing number of companies show in advancing regenerative visions and initiatives. But what does it mean in practice? Are companies truly adopting regenerative mindset and practices or is it just a myth they help promote?
In 2020 Joel Makower wrote on GreenBiz a piece about regeneration, pointing out that it is “everywhere these days, vying to nudge “sustainability” aside in favor of the next trendy term.” Two years later, his suggestion seems to be more true than ever with a growing number of companies investing in regeneration programs and promoting a regenerative agenda.
Companies like Nestle, Danone, Walmart, Unilever, and others try to make the case that for them regeneration is not a buzzword, but more of a north star. They also use regeneration to signal to the world that they take their impacts on the planet and society much more seriously.
The problem is that while the stories companies present about their commitment to regeneration are very compelling (see here and here for example) they mainly present a myth: the myth of a transformative business model driven by the adoption of regenerative mindset and principles. The reality could not be far from it.
Very similar to the narrative of stakeholder capitalism that was supposed to offer a departure from Milton Friedman’s doctrine, but in practice is simply a “softer” version of shareholder capitalism (I call it in my book shareholder capitalism 2.0), regeneration today in business has turned into a version of sustainability-as-usual (you can call it sustainability-as-usual 2.0). Furthermore, regeneration is used by companies to obscure the fact that they are mainly involved in degenerative business and are either afraid or too comfortable to change their business model in transformative ways.
With the caveats that becoming a regenerative business is a journey and that there are different interpretations of what a regenerative business stands for, I will share why I find the narrative of regenerative business as it is presented by (mostly large) companies to be a myth.
#1: Business-as-usual growth mindset does not change
A shift to a regenerative business model requires first a mindset shift. As Pamela Mang and Bill Reed point out: ”The first step on the path to regenerative work is not a change of techniques but a change of mind.” They emphasize the necessary depth of this process: “Change of mind is not just adopting a few new “mental models.” It means bringing an entirely new mind, one that holds a very different worldview and approaches the world from a very different paradigm…”
RSA’s Josie Warden also offers a similar perspective in the “Regenerative Futures” report, suggesting to look at regenerative as both a new mindset and a paradigm shift. “Having a regenerative mindset means seeing the world as a living system, built around reciprocal and co-evolutionary relationships and wholes, where humans, other living beings and ecosystems rely on one another for health,” she explains.
The idea of regeneration as first and foremost a new mindset is perhaps seen most clearly when it comes to growth. Regenerative thinking requires a very radical shift when it comes to growth, moving away from thinking about quantitative growth to thinking about qualitative growth. If we are to embrace a living systems’ perspective, then, as Daniel Wahl puts it, “what we need is a more nuanced understanding of how as living systems mature they shift from an early (juvenile) stage that favours quantitative growth to a later (mature) stage of growing (transforming) qualitatively rather than quantitatively.”
What’s qualitative Growth? In their 2008 piece Outside insights — qualitative growth Fritjof Capra and Hazel Henderson explain that “qualitative economic growth, by contrast, can be sustainable if it involves a dynamic balance between growth, decline, and recycling, and if it also includes development in terms of learning and maturing.” In a 2017 piece, Capra and Jakobsen added that this is a growth in skills and knowledge, one that “includes an increase of complexity, sophistication, and maturity.”
This nuanced and advanced view of growth is absent from the discourse of companies that claim to advance regenerative thinking. Take for example Walmart that in 2020 committed to becoming a regenerative company. Doug McMillon, Walmart’s President and CEO, said then in a speech that “our goal must be to restore the complex network of relationships between nature and humanity that are essential for people to thrive and achieve equity and prosperity.” Here, it sounds like McMillon and the company are adopting what seems to resemble a living systems perspective, but in reality, both McMillon and Walmart haven’t changed their mindset, certainly not when it comes to growth.
When you look for example at the latest quarterly report of Walmart you can see that it reflects a standard quantitative growth mindset — it’s all about strong revenue growth. On the call with investors, growth (the quantitative one) is mentioned 46 times, while regeneration isn’t mentioned even once. McMillion, for example, offered on the call the following insight: “when times are good, we have room to grow. When things are more difficult, we sell things people want and need at a value and in ways they want to shop. And with new levers for growth across our flywheel, we’re becoming even stronger and more resilient.”
No one is expecting Doug McMillion to become Patagonia’s Yvon Chouinard and start saying that “all of us should be buying less but buying better” overnight. At the same time, if the company and its leadership are not signaling that they recognize the need for a mindset shift from quantitative to qualitative growth, then their commitment to regeneration seems more like empty words.
#2: Continuing with substantial degenerative activities
Companies’ business models can have both regenerative and degenerative parts. That seems to be the idea of companies like Coca-Cola, Starbucks, Danone, and others, which develop regenerative programs, for example around the use of agricultural raw materials, while other material parts of their business model continue to be very degenerative in nature.
First, let’s clarify what degenerative stands for. Ethan Soloviev suggests that these are “processes, practices and protocols that decrease the health and wellbeing of a place, person or entity.” “Ecological and social degradation results from fragmentation, over-simplification, homogeneity, and destructive reactivity. There is a loss of possibility, opportunity, and individual agency,” he writes. Similarly, Lüdeke-Freund points out that degenerative business behavior concerns “decreasing values of economic, social and natural capital stocks.”
Building on these insights it is difficult to see how companies, whose business model involves practices or key elements that are degenerative and do not seem interested in eliminating (or significantly reducing) them, can have any regenerative aspirations. Take for example Danone.
Danone sees regeneration as critical to its future as a food company and is touting its work on regenerative agriculture. The company suggests it is “committed to growing food in a way that regenerates natural ecosystems, starting with the soil, and strengthens the well-being of farmers, local communities and consumers.” At the same time, the company is selling bottled water through brands such as Evian, Aqua, and others. Danone’s water brands generated about 18% of the company’s revenues in the last quarter, so it is a material part of the company’s business model.
How does a company with such a clear vision of the significance of a regenerative approach to business have at the same time such a degenerative operation, which extracts a precious resource from the planet and sells it in many markets where there is no shortage in drinkable water? Danone built a whole narrative to justify it (“We aim to bring the best drinking solutions to people in the most responsible way — good for people, planet, and health”), but it doesn’t change the fact that it is involved in a degenerative business. Not only that, but Danone does not seem to show any interest in moving away from the business of selling bottled water. After all, it’s a strong category that keeps growing, so why would it?
The notion that somehow degenerative and regenerative practices can live happily together within the same business and somehow lead to a regenerative future is a false narrative. It’s true that there can be a process of transition from a degenerative to a regenerative business model. For example, Danone could have been making an effort to change its business model — stop extracting water to be sold in markets where bottled water is not needed and look for truly regenerative ways to offer access to water in markets where water is scarce. However, if there is no clear indication of such a journey and all signals show that the degenerative element in the business will continue to grow, then what we have is nothing but a myth of a pathway to a regenerative business model.
#3: Tweaking the system instead of changing it (or: choosing H2- instead of H2+)
The first two points focused on companies’ inability or unwillingness to free themselves from the chains of business-as-usual (or sustainability-as-usual at best) mindset and activities. In this point, I suggest that this pattern is also mirrored in the regenerative efforts themselves, and as a result, most of the regenerative efforts companies are involved with can at best tweak the system rather than radically change it, which is what we need.
Right now, the majority of the regenerative efforts in business focus on agriculture, especially in companies that produce food, such as Nestle, Danone, Unilever, PepsiCo, Cargill, and others. Regenerative agriculture, according to Nestle, is “an approach to farming that aims to improve soil health and soil fertility — as well as protecting water resources and biodiversity.” At the same time, as the company points out, “there is currently no collectively recognized and approved precise definition for regenerative agriculture.”
This vagueness allows for different interpretations by big food companies. At the same time, we can see one common thread in these interpretations - the regenerative work in practice is still too much grounded in the status quo. If you want to think about it in terms of the three horizons framework, most of the energy and investment go to sustaining innovation (H2-), not disruptive innovation (H2+), and thus allow the status quo (H1) to absorb and significantly reduce the transformative potential of what regenerative agriculture could entail.
A key example is a regenerative approach applied to livestock farming. Livestock is responsible for 14.5% of global GHG emissions (some estimates are higher), and their footprint is rapidly growing, mainly due to the increase in meat consumption. In addition, grazing lands take about 26% of the planet’s land surface (croplands, for comparison, use only 12%), while meat and milk from animals fed by grazing produce just 1% of the world’s protein. In his new book, Regenesis, George Monbiot calls this phenomenon agricultural sprawl: “using large amounts of land to produce small amounts of food.” Monbiot claims that in addition to the GHG emissions created by farming, agricultural sprawl inflicts significant ecological and carbon opportunity costs due to the ecosystems (forests, marshes, etc.) that could have covered the land.
So what do we need to do about it? How do we ensure that the global food system becomes more resilient (not to mention more equitable)? A disruptive innovation approach aiming to transform the system (H2+) would look for new ways to significantly reduce livestock farming and replace it with meat, poultry, and dairy alternatives (see examples here and here). This is a challenging yet necessary step given the growing fragility of our food system, especially in the Global South.
However, large food companies like Nestle seem to be taking a different approach. Nestle’s regenerative agriculture model focuses in general on diverse cropping systems and livestock integration, collective and landscape action, soil health, biodiversity, and water security and quality. It’s important to mention that Nestle’s regenerative agriculture model aims to help the company achieve its climate goals — cutting GHG emissions by half by 2030 and achieving net-zero emissions by 2050.
With that in mind let’s zoom in on dairy and livestock, which are responsible for 37% of the company’s overall GHG emissions. Nestle’s roadmap to net-zero suggests that the key actions to reduce emissions when it comes to dairy and livestock include cutting the methane produced by animals, feeding livestock with more sustainable feed, making farms more productive through better herd management, as well as grassland management and increasing carbon storage in the soil.
These actions are aimed to achieve high-yield, low-impact farming, where dairy and livestock generate less methane and the farmland stores more carbon. The strategy is based on enhancing optimization and efficiency in every aspect related to livestock emissions. Now, there are a couple of issues with this strategy — for example, “making farms more productive through training and better herd management,” is supposed to generate by far the largest reduction in emissions, and yet remains somewhat vague when it comes to details. “It includes monitoring and management of animal health and age, adapted animal welfare practices, feeding based on calculated requirements and fertility management,” Nestle tells us.
Another issue is the focus on grassland to store carbon. Carbon farming, as it is called, has been challenged both in terms of measuring changes in how much carbon is stored in the soil and its overall potential to mitigate climate change that is considered by some as overhyped, mainly due to companies like Nestle and their interest in carbon credits generated by carbon farming.
The main questions about Nestle’s approach to livestock farming are not just about vagueness or overhyping the climate benefits of carbon storage, but mainly about its approach overall. The company’s strategic focus on optimization and efficiency is a classic sustainability strategy that is about doing less bad. This does not mean that it won’t create some positive impact, just that it is not what is needed to help make the food system more resilient.
The pursuit of efficiency is what brought us in the first place to have an intensive (and inhumane) industrial livestock system that works to maximize profits (this is H1). With the expected growing demand for dairy, poultry, and meat any savings in GHG emissions due to efficiencies are likely to disappear, not to mention the need to use more land to support the increase in livestock grazing and grow crops to feed more farm animals.
The bottom line is that Nestle’s approach to regenerative agriculture is not offering a shift from efficiency (doing the thing right) to effectiveness (doing the right thing). Daniel Wahl provides a quote from Brodie Partners that I find to be applicable here: “Regenerative Economics looks like one of the more exciting ways forward but it fundamentally means starting new ways of working rather than improving the old ways.” New ways of doing things are certainly a higher bar, especially for large food companies like Nestle, but this is the bar required to ensure our food system becomes more resilient and equitable. It means that rather than asking how to make the production of meat and dairy less harmful, we need to ask how to develop a new system that meets our needs for protein more effectively.
In all, regenerative business models remain a challenging concept for companies. This is why current efforts seem to generate so far mostly diluted models that companies may feel comfortable with, but do not offer a significant impact. Can this state of things be changed? I believe it can, but it requires a more systematic change in the economy that will make it easier for companies to take a bolder approach to regeneration. Until then, we need to be clear that what we see now is at best sustainability-as-usual 2.0, not regenerative business models.
Raz Godelnik is an Assistant Professor of Strategic Design and Management at Parsons School of Design — The New School in NY, where he serves as the Strategic Design & Management BBA Program Director. He is the author of Rethinking Corporate Sustainability in the Era of Climate Crisis — A Strategic Design Approach, which was published by Palgrave Macmillan in July 2021. For more information on his work see Sandbox Zero. Feel free to connect on Twitter and LinkedIn.
