#26: SCI – Humanity’s Best Hope for a Truly Prosperous Future

Resolving major challenges and achieving true prosperity requires actions in many areas. No single strategy can produce sustainable society. However, using investing to drive system change is the highest leverage approach available to humanity, in part because it incentivizes the powerful corporate and financial sectors to drive systemic changes in all areas of society. This post summarizes how SCI does this and why this approach is essential.

New Responsible Investing Approaches Are Needed

Rapidly growing environmental, social, economic and political problems and turmoil severely threaten business, investors and society. Responsible investing and corporate sustainability often benefit shareholders and other stakeholders. But they barely slow, much less resolve, climate change, political division, AI threats, and the many other major challenges facing humanity. New approaches obviously are needed.

Media often discusses problems and symptom-focused solutions (e.g. green energy). But there usually is little discussion of root causes and whole system solutions. Myopic economic and political systems unintentionally compel companies to cause climate change and other SDG problems. These systems are the root causes of major challenges. If we do not voluntarily improve them, they will involuntarily change (i.e. collapse). Given rapidly growing problems, this voluntary or involuntary change will likely happen soon.

Why SCI is the Best Hope

Evolving overarching economic, political and other human systems into sustainable forms requires actions in all segments of society and collaboration among them. But only the corporate and financial sectors have the ability to drive voluntary system change, for two main reasons – power and influence. These sectors have the power to drive the pace and scale of systemic change required to avoid collapse. They also have the ability to influence systemic change in other areas.

Citizens collectively are the most powerful force in society. They could quickly change any government or company, if they understood and acted upon their many common interests (e.g. survival, prosperity). But as the US Founders well knew (and as discussed in last week’s post), it often is easy for vested interests to mislead, divide and disempower citizens. Uniting them is a longer-term effort.

Nearly all economic reform requires political reform. But governments in the US and many other countries largely are controlled by vested interests. As a result, they are unlikely to substantially change on their own.

This leaves the corporate and financial sectors as the primary drivers of voluntary system change. They traditionally have opposed systemic changes that threatened profits and investment returns. But humanity’s unintentionally destructive systems are breaking down. Cumulative negative impacts are making them untenable.

It is quickly becoming more profitable to promote rather than block system change. Visionary companies understand the need for system change. They usually are better managed overall, and thereby earn superior investment returns.

The corporate and financial sectors largely are controlled by investing. SCI uses this powerful lever to engage these sectors in system change. It is the highest leverage strategy available to humanity for achieving a truly prosperous future.

Investing in Green Companies Will Not Produce a Green Economy

As the essential need for a system change becomes clearer, new investment approaches are being developed to drive it. Some strategies provide tools for shifting portfolios from brown to green companies. Others develop new investment vehicles that balance financial with environmental and social returns. Much of the investing seeking to drive system change involves investments in green, often private companies (e.g. renewable energy, sustainable agriculture).

These approaches frequently benefit investors and society. But they do not directly address root causes (i.e. flawed economic and political systems). The intention is that investing in green companies will drive the transition to a green economy. It will help, but not achieve the goal.

Current economic and political systems unintentionally demand a brown (i.e. harmful) economy. That’s why we have one. Green companies are forced to compete with one hand and two legs tied behind their backs. Current systems often create the illusion that brown/harmful companies are more profitable than green ones because these systems do not hold companies fully responsible for environmental and social harm.

This frequently makes it impossible to stop harm in competitive markets. If companies try, costs usually rise and they ultimately go out of business. There can be no sustainable company in an unsustainable system because companies will not last if the system that enables them to exist does not last.

Investing in green companies will not be nearly enough to create a green economy. Investment strategies that directly drive economic and political reform are needed. That’s what SCI does.

How SCI Drives System Change

SCI is based on the proven ESG strategy. ESG encouraged nearly all large companies to implement sustainability strategies. It did not resolve challenges because it was focused on addressing symptoms and changing companies. SCI uses a modified ESG strategy. It expands the focus to include system change and root causes.

SCI is a high leverage strategy because it rates companies on efforts to change systems at the sector and overarching system levels. System change influence and performance is assessed in essential areas, including economic, political, media and education.

This research is used to shift investments to system change leaders. Like ESG, this strongly incentivizes companies to implement system change strategies. SCI rewards companies that drive system change and penalizes those that block it. Through this high-leverage approach, investments in SCI funds can drive system change throughout society. 

Among the various investment approaches seeking to drive system change, SCI has the highest potential to gain market share and benefit society because it is powerful, easy and profitable. All companies can be rated on system change performance. SCI ratings can be used as overlays on nearly all fund types to enhance financial and sustainability performance. This enables nearly all of the capital markets to drive system change.

SCI is easy to implement. It is a simple modification to ESG strategies that most large asset managers already are using. SCI enhances returns by assessing systemic risks and opportunities and providing strong indicators of management quality.  

The SCI team developed and pioneered the concept of using investing to drive system change. We help financial clients to practically and profitably integrate system change into responsible investing and sustainability strategies.

For more information, visit our website SystemChangeInvesting.com or contact us directly.