#3: Getting practicable: How SCI works
Here’s a comment we often get:
“Yes, ok, we understand the need for system change and addressing root causes rather than symptoms. We also agree that current ESG will not get us there. But how the heck do you implement it through the capital markets?”
Here is what we say:
System Change Investing (SCI) is probably the most powerful and easy to implement investment strategy for driving system change:
It is based on the proven ESG approach. Twenty years ago, few companies had sustainability strategies. Now nearly all large companies have them. Pressure from investors through responsible investing was the main factor compelling companies to implement sustainability strategies.SCI uses the same approach. It involves rating companies on system change performance and shifting investments to system change leaders. This strongly incentivizes companies to effectively address system change.
SCI is easy to implement because it requires only minor modifications to ESG strategies that nearly all large asset managers already are using. The approach adds system change metrics to ESG models. Asset managers then use these enhanced-ESG ratings in the same way to develop the same types of funds.
As discussed in post two, SCI is powerful because all companies can be rated on system change performance. This enables nearly the entire capital markets to be used to drive system change.
You might be thinking, "Ok, but can I have some more details please, e.g. what kind of models does SCI offer, what are sample metrics and how do I use them?"
Here are more details:
SCI offers several models for rating companies on system change performance, ranging from introductory to full whole-system approaches. To illustrate, the whole-system SCI model (Total Corporate Responsibility–TCR®) is segmented into three broad metric categories:
traditional ESG
mid-level system change (sector, stakeholder, environmental/social issue-level)
high-level system change (overarching economic, political, social system-level)
Sample SCI metrics include business consciousness/whole systems thinking, system change goals and strategies, senior management commitment, accountability, reporting, system change collaboration, addressing specific systemic changes, government influence activities, media campaigns, and supporting system change initiatives.
Asset managers can combine SCI ratings with financial analysis to develop high-performing enhanced-ESG and SCI funds.
If this sounds interesting, please reach out (info@SystemChangeInvesting.com). The SCI team helps financial firms to profitably and effectively address system change, integrate it into existing funds, and launch SCI funds. SCI work includes assessing existing responsible investing strategies, helping to identify sources of corporate system change performance data, integrate system change into existing ESG models, and effectively market system change internally and externally.
In the next post we will focus on how SCI provides investors with superior financial and sustainability benefits.
