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A Just Transition for Finance


Mohit Mookim (@mohitmookim) is a 2L at Stanford Law School and volunteer at the Sustainable Economies Law Center

Our dominant financial systems place profits over human rights and the survival of ecosystems. Big banks provided $3.8 trillion to fossil fuel projects over the last 5 years. A private equity firm made $3.5 billion on a single investment that fueled the gentrification and eviction crisis, catching the UN’s attention. And hate groups received $52.8 million of tax-exempt charitable funds in recent years. We shouldn’t expect otherwise, because these systems were set up to facilitate injustice.

But historically marginalized communities are designing creative financial systems that meet their own needs. To reimagine finance, we should look to the East Bay Permanent Real Estate Cooperative, which raises funds from values-aligned sources to decommodify land and housing in the Bay Area.

I argue that the East Bay cooperative’s approach to finance demonstrates a key element of the Just Transition. Ensuring labor justice for displaced fossil fuel workers is only one component of a Just Transition from an extractive, capitalist system. Movement Generation adds the following: “shift the economy from dirty energy to energy democracy, from funding highways to expanding public transit, from incinerators and landfills to zero waste, from industrial food systems to food sovereignty, from gentrification to community land rights, and from rampant destructive development to ecosystem restoration.” I would add one more: in addition to financing these changes, we need to implement a Just Transition for finance itself.


Today, it is no longer radical to say that conventional finance needs to be rethought. Wall Street itself has blessed so-called Environmental, Social, and Governance (ESG) investing into the mainstream. A closer look reveals that the ESG movement does not meaningfully improve the status quo. While some ESG funds do screen out undesirable industries like fossil fuels or tobacco, they often replace them with companies like Amazon and Coca-Cola that are destructive in other ways. But most ESG investing doesn’t shift investments based on ethical concerns at all, requiring only that investors consider ESG-related risks to their investments. Damaging ecosystems, for example, only counts against a company when it cannot mitigate the damage to its bottom line. As BlackRock explains simply, its approach to ESG is “not a values-based exercise.”

Disappointed with ESG approaches, a growing movement of investors is looking off Wall Street entirely for investment options that align with their values. The Center for Economic Democracy recently released a report on “social movement investing,” in collaboration with a range of partners including Climate Justice Alliance, a nationwide coalition; Transform Finance, a research and advocacy organization; the Kataly Foundation, which houses a Restorative Economies Fund; and Chordata Capital, an “anticapitalist wealth management firm.” The report explains, “the primary differentiator between impact investing and Social Movement Investing is a commitment by asset owners and managers to build accountability to the communities and leaders who are on the front lines of social change.”

A Case Study in Finance Reimagined

The East Bay Permanent Real Estate Cooperative (EB PREC) shows what social movement investing can look like in practice. Emerging from housing justice organizing in the Bay Area, EB PREC removes land and housing from the speculative market to create permanently affordable, community-controlled real estate. EB PREC empowers traditionally marginalized communities not just by providing affordable real estate, but also by building a large membership base and serving members’ collective goal of transforming their neighborhoods and systems of finance and land ownership. In that way, it is a “movement cooperative.”

The 400 member multi-stakeholder cooperative recently raised $5 million in grants, donations, loans, and investments to acquire and revitalize a historic jazz club in West Oakland. In the spirit of grassroots finance, it invites financial resources from a range of community sources: from local residents who may have retirement savings to large foundations that can offer low- or no-interest loans.

EB PREC receives investments through its direct public offering, qualified with the SEC under Regulation A (Tier II). Investor-owners can purchase shares at a price of $1,000 each to join the cooperative, alongside resident-owners, staff-owners, and community-owners. The shares are non-transferable, fixed in price, and may receive a 1.5% annual return in the form of a dividend. As its innovative bylaws illustrate, these four types of owners collectively steward the organization and implement its vision, without giving disproportionate say to investors. EB PREC has raised over $1.4 million through its public offering, and a substantial portion of investors waive the 1.5% dividend—showing they come with a very different mindset than what is often connoted by “investor.” (Note, I am an investor-owner and provide volunteer legal support to EB PREC.)

Crucially, EB PREC solicits “non-extractive financing,” meaning that lenders and investors are asked to take on more risk and receive less financial benefit than in conventional loans and investments, in order to prioritize community benefit. Non-extractive financing is defined by Seed Commons—a national network of community-controlled local loan funds—as financing that is never harmful to the borrower. By this definition, borrowers are not required to make interest or principal repayments until they are able to cover operating costs. This allocation of risk and return is important because, as the donor network Resource Generation explains, there are many types of risks that marginalized communities already take on.

Because EB PREC is currently open to investors in fifteen states and the District of Columbia, it is a popular and accessible option for investors looking to divest from Wall Street. It serves as an important touchstone for communities like the Next Egg, which is dedicated to rethinking retirement. As many unique legal questions arise in both, the Next Egg and EB PREC were co-launched and incubated by the Sustainable Economies Law Center, which cultivates a new legal landscape that supports community resilience and grassroots economic empowerment. As their lawyers quickly found out, a variety of legal constraints tie retirement accounts to conventional finance—including the ERISA requirement for asset managers to invest “prudently” by optimizing risk-adjusted returns (in a diversified portfolio). Ironically, this means retirement plans often have to invest worker savings in profitable fossil fuel companies creating a world that may become uninhabitable for workers to retire into.

EB PREC faces related legal barriers to accessing major sources of investment capital. The prudent investor rule applies not only to most retirement savings—totaling $37 trillion in the U.S.—but also frequently in the context of charitable endowments—valued at $1.7 trillion. Just as the fiduciary duty to invest “prudently” keeps assets in destructive but profitable enterprises, it also poses a prima facie barrier to investing in enterprises like EB PREC that are oriented around community rather than profit. Although a malleable doctrine, the prudent investor rule puts profit and returns on a legal pedestal to guide investment decisions. Biden has adjusted the ERISA mandate to allow retirement plan managers to consider ESG risks, but the proposed regulation is clear—in typical ESG fashion—that returns cannot be sacrificed for social benefit.

An additional obstacle is posed by the legal distinction between “accredited” and “non-accredited” investors. The SEC considers 90% of Americans to be “non-accredited” because of their income (less than $200,000) and net worth (less than $1 million, excluding their home). Non-accredited investors are disfavored throughout the regulatory regime through Reg D guidelines—a common route for non-Wall Street offerings—and Section 12(g) disclosure requirements—relevant in EB PREC’s case. These rules are, in theory, meant to “protect” non-accredited investors who are presumed to not be “sophisticated.” In reality, restrictions on non-accredited investors inhibit grassroots finance offerings from taking root—thereby ensuring that the wealthy shape non-Wall Street financial infrastructure too.

Finally, it is important to recognize the basic challenges of trying to recreate commons-like structures within a capitalist system of private property. For example, EB PREC emphasizes that it is “stewarding” land with the community rather than “owning” it in the conventional sense. Despite being a legal landlord, EB PREC removes the right to evict for nonpayment of rent from its resident share agreements—as part of its commitment to land without landlords. Relatedly, the cooperative must grapple with the tradeoff between keeping real estate permanently affordable and allowing residents to build equity; one must be done at the expense of the other. On the most fundamental level, some question whether the basic premise of investing—enabling those with capital to keep and grow their assets even with low rates of return—is ethical at all.

Despite these legal constraints and conundrums, brilliant activists are creating financial systems that support truly transformative enterprises providing safety and healing to everyone. Climate Justice Alliance envisions a Financial Cooperative that is “a democratically-governed cooperative of local, non-extractive revolving loan funds that invest in projects owned/operated by frontline communities to build economic democracy rooted in ecological integrity.” And lawyers like those at the Sustainable Economies Law Center are helping organizers push the law (at low or no cost) by advocating policy changes and by designing creative organizational structures, securities offerings, and contracts that expand relationships.

What would it look like for such projects to be unconstrained by the capitalist legal strictures they operate under now? While the exact shape and contours of post-capitalist finance should be determined by frontline activists, lawyers can join the fray in supporting transformative movements and organizations in overcoming legal (or nonlegal) barriers, and imagining what worlds would be within reach under radically different legal (or nonlegal) regimes.