#49: SCI fills gaps in the system change-based investment field
As discussed throughout the SCI posts, flawed economic and political systems compel harmful behavior. They are the root causes of climate change and other major challenges. Improving these systems (i.e. system change) is the most important action needed to achieve sustainability and the SDGs. Growing awareness of the need for system change is driving new investment strategies that seek to promote it.
In this post we argue that two major gaps remain in this emerging field which SCI seeks to fill:
A true whole-system, nature-based framework for guiding system change overall, and financial and corporate sector system change strategies in particular.
An easy to implement, broadly applicable, powerful investment strategy for driving system change.
Existing Approaches
Below we summarize existing system change investment strategies and how SCI fills the whole system framework and broad implementation gaps.
An increasing number of organizations and initiatives are using investing to drive different types of systemic change. New terminology is evolving to describe these approaches. Examples include system-level investing (e.g. TIIP assessing and managing portfolio-wide impacts of environmental and social issues) and systemic investing (e.g. TransCap’s sustainable mobility project in Switzerland).
These investment strategies generally seek to drive system-wide change, often focused on particular sectors (e.g. food systems, mobility, cities, oceans, tourism). Applying holistic approaches, they frequently involve portfolio-wide strategies and blending public, private, philanthropic and community capital. New investment vehicles, governance and contractual arrangements often are a key feature. These approaches take traditional reductionist project and investment strategies to the next level and can be highly effective in sector or issue-specific applications.
Filling the Gaps
However, in our view, true whole system approaches that effectively address root causes are needed to resolve climate change and other major challenges. Everything in the whole Earth system and its sub-element human society is part of one interconnected system. As a result, major issues (e.g. economic reform, climate change) can only be effectively addressed through true whole system approaches.
As Einstein said we must think at a higher level to solve our most complex challenges. That higher level is whole system thinking. SCI embraces and incorporates it as follows:
The Global System Change, nature-based framework is applied to assess and guide essential systemic changes. The framework describes sustainable society using the laws of nature and the systemic changes and actions needed to achieve it. It recognizes that climate change and other major challenges cannot be resolved under systems that created them. System change guided by whole system thinking is essential for overcoming these challenges.
On the implementation side, SCI uses the proven ESG strategy to drive system change. The approach involves rating companies on system change performance and shifting investments to system change leaders. SCI enhances ESG strategies that nearly all large asset managers already are using. Any company can be rated on system change performance. This means that nearly the entire capital markets can be used to drive system change. SCI can be used as an overlay on nearly all types of funds to enhance financial and sustainability performance.
With this approach, SCI addresses the limitations of current system change investment strategies. Current approaches often focus on symptoms (e.g. climate change) instead of root causes (flawed systems). They also frequently target smaller portions of the capital markets (e.g. private equity, green tech) and involve complex new investment structures. To supplement these strategies and accelerate system change, additional approaches are needed that are easy to implement and broadly applicable in the capital markets. SCI provides such an approach.
For more information about SCI, visit our website SystemChangeInvesting.com or listen to this recent SCI podcast.
