Since the early 2000s, the impact investing market has increased in scale, momentum and support.
There’s no doubt that it’s great to see. But unfortunately, the tools, frameworks and mindsets we’re harnessing are not compatible with the complexity of the problems we face.
There’s a growing movement of forward-thinking investors interested in adopting a new approach, one that is capable of solving root causes rather than symptoms. But where do they start?
Analysing the complexities entwined in a system is a key starting point for investors looking to trigger a transformative effect through their deployment of capital.
During our latest Regenerative Investment Roundtable, we were joined by investors and experts in the field to uncover how exactly they can make this happen.
From systems thinking to systemic investment
Driving systemic change requires more than a simple change in investment strategy or logic. It requires a reorientation in how people think about the world, the problems they’re solving, and how they should be approached.
Systems thinking is a way of making sense of the world’s complexities. By taking a holistic approach, we’re encouraged to consider wholes and relationships as opposed to the sum of their parts. It encourages us to analyse the very nature of a system, its nodes, interconnections, behaviours, patterns, and evolutionary path.
When it comes to investment, certain interventions in a system have greater potential to ignite a systemic effect. In systems thinking, places of high potency are called leverage points.
A key question for investors is: Where could a relatively small investment trigger a large, transformative or irreversible effect?
How investors can analyse a system
Systemic investors harness a range of tools to understand where the system they intend to change currently stands, where it needs to be, and how it can get there.
Instruments for systems analysis include theory of change, causal loop diagrams, stock and flow analysis, or as we collectively utilised in our roundtable, the iceberg model.
In our last roundtable, Viliana Dzhartova, systems thinking expert and co-founder of ReImagined Futures shared two models which investors can use to find underlying systemic causes, which help to invest in systemic impact.
The Iceberg model
The iceberg model allows investors to uncover root causes of events by looking at hidden levels of abstraction. It allows you to look beyond immediate, surface-level events, instead uncovering the underlying reasons for why those events occur.
One participant in our last roundtable discussion highlighted:
“The relationship between the different layers can be quite complex. It’s not linear, everything connects with everything else.”
Working on the superficial layer will always be frustrating, as the same events will continue showing up, unless the underlying trends, structures and models are changed.
Identifying the systemic dynamics which lead to certain symptoms or events allow us to work on a redesign of the system, which will automatically lead to different events.
Yet, systems dynamics, with their non-linearity and interconnectedness, can certainly seem overwhelming at initial inspection. But as one participant observed, you don’t need to be an expert to engage in systems thinking.
“We all come from our inner experiences. You don’t need to be an expert to see the structural problems and patterns of what we’re facing, or what could be optimised to work in a more systemic way.”
The three stages of impact for investors
Viliana Dzhartova described this model by researcher Frank Geels and colleagues, which describes different ways impact work is attempted.
Looking at the automotive sector, an example of system optimisation would be to improve fuel engines for higher efficiency.
A shift to electronic vehicles, while reducing emissions, is only a partial system redesign. Often, unintended negative consequences on people or the planet, like lithium or deep-sea mining or congestion of roads, still tend to prevail. Yet, most larger change initiatives limit themselves to this stage of impact..
A systemic change would be to actually rethink and redesign transport to comply with planetary boundaries. Does the model of individual car ownership still make sense? Should urban design serve people or cars? Millions of electronic vehicles will still consume too many resources, though less so than fuel vehicles.
A question for investors is therefore often: at which level do the initiatives I support have their impact? Are current systems being optimised, redesigned or actually changed?
The second practical part of our roundtable was designed to train and facilitate this perspective.
“System optimisation seems like a distraction from the work that needs to happen. It only touches the surface of what we need to see. Again, partial redesign felt very close to system optimisation. It feels inadequate to bring about transformative change.”
The number of investors looking to drive systemic change with their deployment of capital is on the rise. Similarly, the tools, methods, and processes to make this happen are developing at the same ferocious speed.
Still, implementation of future-oriented approaches remains at an embryonic stage. If we want to meaningfully tackle the complex problems we currently face, we need to connect the dots.
This is the mission of our Regenerative Investment Roundtables. If you’re an investor, inheritor or wealth manager looking to be part of the change, register your interest in joining us there.
The next roundtable will explore more concrete examples and tools for systemic investment. More details on that soon.