The science is clear: If we want to safeguard human civilization, we need to fundamentally change the way our social and economic systems operate.
Financial capital is one of the most powerful tools to influence and change the behaviours of a system. We know that the structures, practices and processes of today’s financial sector prevent it from unleashing deep structural change. But what remains unclear is how that capital should be deployed to trigger a transformative effect.
Systemic and regenerative investment are emerging as key tools to deliver deep and genuine impact. However, as relatively new concepts, there are a lot of open questions that the financial community wants to know the answers to.
We recently launched our exclusive Regenerative Investment Roundtables, bringing experts and forward-thinking investors together to do just that. The series explores the most pressing questions in the world of regenerative and systemic investment while building a community of investors ready to embrace the change.
To kick off the series, we went back to the start and asked: What is systems change, why do we need it, and how do we fund it? In this blog, we’ll take a look.
We’re not just facing one problem. From climate chaos to ecosystem collapse and poverty, there are countless challenges deeply entrenched in contemporary society. And to add salt to the wound, they each have their own web of complexity to unwind.
The crisis-fighting techno-fixes are no longer enough. All too often, they bring us back to business as usual rather than addressing the underlying problem at hand.
One thing is clear: These complex problems require a new approach. Such is true both for how we think about them and the tools we utilise to tackle them.
As our co-founder and CEO Ivo Degn highlighted, it is in this context that investment has a role to play. We need to acknowledge the part current capital markets have played – and continue to play – in exacerbating climate breakdown, biodiversity loss, and inequality.
This isn’t about blame. Rather, it’s about recognising that ESG, VC and impact investing are simply not enough to address the scale of the problem. We need deep-rooted, large-scale capital market governance reform to ensure the survival of life on this earth.
“We need regenerative action deployed at a sufficient pace and scale. It’s time for a radical systems change.”
— Alice Kalro
Systems change – what is it?
“Systems are designed to be invisible. The only time we realise there is a system in place is when it fails or doesn’t work in your favour.”
The term ‘systems change’ is a relatively new one. Ashoka defines it in terms of tackling root causes rather than symptoms. It’s about identifying and creating shifts in the system, thereby transforming societal structures, customs and mindsets.
To contextualise it with a metaphor: Say that you go into a bathroom and the bathtub is overflowing, are you going to start mopping up the water or turn off the faucet?
When it comes to societal problems, we’re all too often mopping up the water rather than addressing the source of the issue. This is what can be described as direct impact. In principle, it’s a great thing. But in practice, it’s often a case of putting a bandaid on an issue rather than fully closing the wound.
As Laura Winn, expert and roundtable attendee highlights: “If we keep thinking in terms of problems, we’re still in the same mindset that created them in the first place”.
Systemic investment: Why we need a new approach
Our current funding models are not compatible with systemic initiatives.
To meaningfully combat contemporary issues, we need deep, structural, and irreversible change in the social and economic systems from which they emerge. To summarise, we need systems transformation.
Systemic investing emerged as a response to the failures of conventional impact investing in generating a transformative effect.
It is still investing. There is still a return on capital. However, it makes us revisit how capital is deployed, what kind of capital we need to ignite genuine change, and what constitutes reasonable risk and return expectations.
It’s relevant for a wide range of stakeholders in the world of finance, including governments, financial institutions, foundations, philanthropists, private wealth and impact investors.
Triggering genuine systems change often depends on a multitude of capital coordinating their efforts to trigger a transformative effect.
As one participant from TransCap pointed out:
“Financing and funding systems transformation is going to take more than financing one startup or a couple of nodes in the system. What we need is a coordinated portfolio approach based on systems diagnosis and leverage points identification. That mindset shift away from single assets is crucial.”
Systemic change is often a result of multiple shifts taking place at the same time with a degree of strategic coherence. Hence, the challenge is developing a funding architecture capable of coordinating different forms of capital.
It should be noted that while systemic investment aims to strategically funnel capital into systemic leverage points, it does not necessarily lead to a regenerative effect. Hence, not all systemic investments are regenerative, but all regenerative investments are systemic.
How do we fund systems change?
We need systemic change. But how exactly do we go about funding it? During the roundtable, we opened the space for participants to explore how we can unleash its full potential.
One participant highlighted that the way in which investors decide to distribute their funds will differ quite significantly from conventional approaches. As they put it:
“From a classic investment perspective, the objective is to diversify and keep your investments separate so you don’t have shared risk. But from a systems investment perspective, you’re going to try and do the opposite. You’re going to be working with a group of initiatives and different actors that can have a collective impact on the system.”
Systems transformation rarely occurs from a single initiative, social enterprise or project. Instead, it’s the result of a combined effect of many interrelated shifts.
Thus, participants discussed the potential of blended finance and the creation of orchestration mechanisms. These avenues brings different financial actors together to create combined interventions that are aligned with their objectives.
“Let’s not only invest in companies and start-ups working to tackle the problem. But really, let’s embrace the systemic perspective and look at leverage points.”
One small shift in a system can produce deep changes throughout. By building a system boundary, you understand the different nodes in the system, how they connect, the causal loops, and where you can best intervene.
“We need to identify the blockers, enablers and pockets of innovation. And then, from that, you can start thinking about a theory of transformation for that system.”
The participants agreed that there are parts of the market that remain challenging. Various financial actors and institutions, including governments and regulators, need to be involved in the creation of a framework to encourage change. As one participant pointed out:
“Whether that’s penalties or positive incentives, we need to create a structure for private capital to meaningfully flow into the market and shift the system.”
A call to action
We’ve seen an increase in visionary funders looking to shift away from traditional finance paradigms. But still, awareness and implementation of future-oriented approaches remain at an embryonic stage.
To advance the understanding and uptake of systemic and regenerative investment, we need to further develop the foundations and theoretical underpinnings of systemic finance, shine a light on its potential and put the theory into practice with real-world prototyping.
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.