Issue #6 - The Unravelling of the Extractive Economy

From Extraction to Regeneration: Why Old Economics Is Collapsing

For more than a century, economic progress has been told as a simple story: increase output, maximise efficiency, compound returns. That logic shaped the architecture of modern finance and delivered unprecedented material prosperity. But it also relied on a quiet omission - the ecological and social costs that were pushed out of sight and outsourced onto someone else’s balance sheet.

Signals once dismissed as peripheral now sit at the centre of economic risk: Soil fertility has declined across over at least a third of agricultural lands globally.¹ Supply chains built for frictionless efficiency are fracturing under climate disruption. Insurance markets - the economy’s shock absorbers - are retreating from entire regions as disasters grow too costly to underwrite. Social unrest rises alongside economic instability. The old economic model is not just fraying, it's encountering real biophysical limits that no spreadsheet assumption can smooth over.

At this point, the question is not if the paradigm will shift, but how fast, and with what collective intention and intelligence, will we rise to design the system that follows?

This week’s issue of Building the Living Economy dives deeper into the anatomy of extractive economics, the limits driving it toward collapse, and the emerging architecture of a regenerative alternative - offering a roadmap for pro-active leaders ready to move ahead of the shift.

The Anatomy of the Extractive Economy

The industrial era treated nature as a storehouse of free inputs and framed ecological degradation as an external cost – someone else’s problem. That illusion held only while the economy remained small relative to the planet. However, it fails once economic activity grows large enough to destabilise the very ecological foundations that sustain it.

Extraction-first systems optimise for short-run throughput - maximise yield, minimise cost and deliver quarterly returns - while neglecting replenishment and resilience.  The long-term consequences - depleted soils, eroded watersheds, fragile supply chains - accumulate off-book.

Agriculture offers a clear example: cropland optimised for maximum annual production often reduces soil organic matter, microbe diversity and water-retention, setting the stage for multi-decade decline. A 1% decrease in soil organic matter can reduce water-holding capacity by roughly 20,000 litres per hectare - a material loss in a world of intensifying droughts.²

These dynamics are reinforced by institutional structures:

• Managers are rewarded for beating short-term benchmarks.

• Investor evaluation cycles favour liquidity and short reporting horizons

• Subsidies still tilt toward resource depletion, over stewardship.

• Corporate law ties executive reward to share price, not ecological performance.

When incentives are calibrated for immediacy, long-horizon health looks uncompetitive. Economies become proficient at extracting value but poor at renewing the systems that create it.

Beyond incentives, extraction economies are also information-poor about the value of natural capital: markets reliably price manufactured goods but routinely ignore ecosystem services - pollination, water filtration, flood protection, soil carbon storage etc. Without credible pricing or regulatory guardrails, these assets remain invisible in capital allocation. The result is a systematic undervaluing of resilience and an over-investment in extractive operations that can deliver impressive short-term returns but erode the foundations of future wealth.

The Scientific Limits: Planetary Boundaries and Tipping Points

Ecological science now makes explicit what earlier economists assumed away: Earth operates within interdependent physical and biological thresholds. Push these boundaries - climate stability, freshwater use, biodiversity integrity - too far and systems can shift abruptly.

These tipping dynamics are not activist metaphors; they are physical realities. A small additional pressure - a few more parts per million of CO₂, or a few more hectares of deforestation - can sharply increase the probability of irreversible shifts. Greenland’s ice sheet, for instance, is approaching a melt threshold that scientists estimate could be crossed from around +1.4°C of additional warming.³

Non-linearities mean that marginal harm today can disproportionately increase the chance of catastrophic outcomes later. This introduces tail risks that standard linear risk models systematically underprice, as these assume gradual change and damage as linear. In reality, systems can snap.

Regenerative practices - restoring soil carbon, rehydrating watersheds, reconnecting habitats - reduce the probability of crossing thresholds and increase systemic resilience. These benefits are measurable, not speculative add-ons, and transform restoration from moral aspiration or altruistic outliers into a risk-reducing asset class.

Why Markets Alone Have Failed

Economics offers clear explanations for why unmodified markets misallocate capital in ecological systems:

Externalities

Pollution, biodiversity loss, groundwater depletion - these costs fall on society, not the private actors creating them. Without mechanisms to internalise these costs (eg. taxes, tradeable permits, regulations), markets reward the wrong behaviours, allocating resources toward activities that appear profitable while imposing unpriced damage on society.

Temporal discounting

The role of discounting in economic evaluation systematically disadvantages long term resilience investments. Many institutions apply high discount rates that cause future benefits to be valued very little in present terms, rendering multi-decade ecological investments unattractive compared to short term commercial projects. This does not reflect a moral failing so much as a mathematical distortion baked into governance norms: fiduciary structures and market expectations prefer liquidity and shorter horizons.

Public goods and common resources

Many ecological systems function as public goods or common-pool resources, where exclusion is difficult and use by some affects availability for others. For example, clean air, a stable climate, and healthy fisheries fit this pattern - shared by all but hard to protect when left to the market alone. Left to uncoordinated market actors they are routinely over-exploited. This 'tragedy of the commons' is not an inevitable law of nature but a failure of institutions - one that can be resolved only through effective collective governance.

Correcting this requires innovative instrument design and governance structures that internalise costs, realign incentives, and establish stewardship regimes for shared natural assets.

Signals of Systemic Stress: What the Data Shows

The symptoms of an over-extended system now appear in economic data:

• Agriculture: Climate volatility explains more than 30% yield variability for major crops globally since the 1990s.⁴

• Energy: Fossil fuel assets face rising risks of being stranded as demand shifts and policy tightens.

• Insurance: Insurance premiums in high-risk areas in the US have risen by more than 30% in under five years, and major insurers have exited entire states, making previously bankable assets financially precarious.⁵

• Supply chains: Climate-induced disruptions are rising sharply, surging by over 40% in recent years.⁶
  

These are not future warnings; they are present signals. They show that the economy’s underlying resilience - the capacity to absorb disturbance - is being eroded.

Financial markets are beginning to price these risks. Long-horizon investors now factor higher probabilities of asset impairment in carbon-intensive sectors under consistent climate policy, while sovereign credit assessments increasingly incorporate climate vulnerability. These early adaptive signals show markets responding to information and governance - but also highlight the cost of delay: abrupt revaluations are far more damaging than a steady, managed transition.

Beyond markets, social indicators such as migration, urban fragility, and food insecurity, are reshaping the macroeconomic environment and feeding directly into investor risk. Companies reliant on supply chains weakened by chronic drought face both operational and reputational exposure. The link between ecological stress and financial fragility is measurable, material, and accelerating.

Principles of Regeneration: A Different Economic Logic

A regenerative economy does not reject productivity or innovation; it redefines the conditions under which they thrive. Four design principles form its backbone:

Circulation over throughput

Capital should behave like nutrients in an ecosystem, continually circulating to renew the conditions that sustain productivity rather than being extracted and exported. This includes reinvestment models, local multiplier effects, and financial instruments that return capital to communities and natural assets.

Diversity and redundancy

In biological systems, variety sustains resilience. Distributed energy systems, diversified crops and supply chains, and multiple ownership structures reduce correlated risk and systemic fragility.

Reciprocity and stewardship

Returns are tied to enhancing the assets on which they depend—healthy soils, clean water, stable communities. Mechanisms include payments for ecosystem services, stewardship funds, and contracts embedding custodial responsibility.

Polycentric governance

Decision-making at multiple scales - local, regional, global - works in coordination. Global standards provide comparability; local governance ensures contextual fit and community buy-in. Not bureaucracy, but coherence and alignment.

Together, these regenerative principles reward actors who strengthen the broader system, not weaken it, creating the scaffolding for an economic system that reinforces the network of relationships on which all prosperity rests.

Practical Instruments: Rewiring Capital in the Real World

A regenerative transition is already emerging through practical financial tools:

• Outcome-linked debt and bonds - interest rates adjust based on verified ecological performance, aligning financial return with measurable regeneration (eg. carbon sequestered, water tables restored).
  

• Blended finance structures - public or philanthropic capital absorbs early-stage risk to unlock private investment, lowering commercial hurdles while ensuring outcomes.

  
  

• Community equity and co-op models - local ownership keeps value circulating within communities and embeds stewardship incentives, linking returns to social stability.
  

• High-integrity ecosystem service markets - properly designed markets for watershed services, pollination, or biodiversity credits direct value to those genuinely restoring ecosystems rather than rewarding symbolic compliance.
  

• Permanent capital vehicles and 'capital circulators' - reinvesting returns into successive regenerative projects rather than distributing them outward, creates compounding ecological impact.

All of these instruments share one enabling condition: credible, independent measurement. Without it, markets misallocate capital and risk greenwashing, undermining the regenerative transition.

Measurement, Data and the Role of Technology

Regeneration becomes investable when it becomes measurable. Advances in remote sensing, satellite imagery, soil sensors, eDNA, and AI now allow ecological change to be tracked at scale with unprecedented granularity. These tools enable performance-based contracts, near-real-time biodiversity monitoring, and independent validation of ecological claims - an antidote to greenwash.

But measurement is not only technological, it is cultural and institutional. For example, shared baselines, scientific protocols and governance that prevents manipulation; and socio-economic metrics that capture community resilience, food security and cultural values - dimensions not reducible to single environmental variables. In this context, evidence becomes a public good.

When measurement and evidence is credible and transparent, capital markets can price regeneration. Investors can then evaluate risk-adjusted returns where the ‘return’ includes reduced physical and transition risk, while capturing lasting productivity gains and avoided losses.

Governance, Institutions and the Politics of Change

Systems change is as much political as technical. It requires institutions capable of coordinating across scales. 

Corporate governance must evolve to align executive incentives with long-term ecological health. Regulatory frameworks must price externalities they once ignored. Legal structures - from public-benefit corporations to community land trusts - must recognize stewardship as a legitimate economic function.

Resistance is inevitable; incumbents rarely move willingly or welcome the reallocation of capital and reforms to subsidies. Yet countervailing coalitions are forming: investors concerned about stranded assets, communities seeking resilience, entrepreneurs building viable alternatives, and policymakers attentive to mounting macroeconomic risk.

The transition will not be symmetrical - but it can be coherent.

Pathways for Action: Where to Start

For many decision-makers, the task can feel overwhelming. A pragmatic starting point includes several near-term steps:

• Policymakers:  Price previously unpaid risks through carbon and pollution pricing, remove perverse subsidies, and mandatory disclosure of ecological dependencies and risks.
  

• Investors:  Integrate ecological scenario analysis into portfolios, support blended-finance structures for early regenerative projects, and pilot outcome-linked instruments.
  

• Businesses: Map natural-capital dependencies, redesign supply chains for diversity and redundancy, and shift procurement toward regenerative producers.
  

• Communities: Use cooperative ownership to retain value locally and strengthen stewardship incentives.

  
  

• Polycentric governance - local leadership supported by regional and international standards - offers a practical route that preserves context while enabling scale. As each actor iterates, they help build the market infrastructure and governance norms that a regenerative economy requires to scale.
  

A Design Choice, Not a Destiny

Economic systems are not laws of nature; they are human designs. What is collapsing today is not fate but the logic of an outdated architecture that has outlived its viability.

As ecological science, financial innovation, and measurement technology converge, a credible alternative is emerging - grounded in circulation, diversity, stewardship, and distributed governance.

The transition will be contested, messy and uneven, but doubling down on extractive designs while the biophysical substrate erodes is neither strategically sound nor morally defensible.

The move from extraction to regeneration is less a policy or investment shift than a civilisational reorientation. It asks different questions: What counts as wealth? What counts as risk? What counts as progress?

It demands precision in measurement, rigour in governance, humility in economics, and the courage to act before events make the choice for us - qualities that distinguish leadership from drift. For leaders who act with clarity now, this moment is more than crisis management, it is an extraordinary opening: to steer capital toward prosperity that deepens with time, not profit that evaporates, and to rebuild an economy worthy of the century ahead.

What is collapsing is the old extractive model. What is opening is the possibility of a post-extractive, nature-positive economy - one in which life thrives by design, not by accident.

Onward,

The HSG Team

Want to see where this leads?

In our next issue we’ll explore how today’s stagnant financial flows are fuelling inequality and how capital can be re-engineered to become the greatest catalyst of planetary repair. ➡️ Subscribe to stay updated... ¹ How Much Margin Is Left for Degrading Agricultural Soils? The Coming Soil Crises - Gebremedhin et al. (2022) ² Exploring the Greenland Ice Sheet’s response to future atmospheric warming-threshold scenarios over 200 years - Delhasse et al. (2025) ³ Raising Soil Organic Matter Content to Improve Water Holding Capacity - Bhadha et al. (2017) ⁴ Climate variation explains a third of global crop yield variability - Ray et al. (2015) ⁵ Rethinking climate adaptation for global resilience – Allianz Research (2025) ⁶ How Will Climate Change Impact Supply Chains in 2024? - Resilinc (2024)