How investors can utilise a poly-capital approach

Blog post 11 – manuel troya-featured image
26 Feb, 2024
— Arlene Barclay

Most of the societal challenges we currently face — climate change, biodiversity loss, social inequality – are deep rooted, complex challenges. It’s not enough to simply treat symptoms. We need deep, structural change.

There’s a growing movement of investors interested in moving systemic investment from theory into practice. But unfortunately, some fundamental questions remain unanswered.

One of those questions concerns who needs to be involved to trigger deep, structural, and irreversible change.

During our latest Regenerative Investment Roundtable, we were joined by Andre Ticoulat of TransCap to explore.

The problem with traditional impact investing

Traditional impact investing is predicted on a single asset paradigm: The idea that a single technology, project, or enterprise can bring about structural change in society.

This paradigm of investment has catalysed the emergence of many so-called ‘solutions’. But according to Andre, single asset solutions are not fit for the challenge of solving large systemic issues.

If we look at the transition to electric vehicle use at scale: Yes, they’re contributing to the phase out of fossil fuel cars. But are they solving the deeper structural problems entrenched in the system? Too many private cars on the road, underfunded public transportation networks, and the list goes on.

As Andre highlights, “Socio-technical systems are complex. Transforming them rarely results from the work of one initiative.” Instead, it typically occurs through the combined effects of many interrelated shifts from different actors throughout the system.

On funding systems transformation

“Systemic investing assumes that systems change is most likely the effect of multiple shifts happening within a system at the same time and with a degree of strategic coherence, which means that the challenge is to develop a funding architecture capable of directing different forms of capital to enable a multitude of intervention under a transformative theory of change.”

 

– Dominic Hofstetter

The various shifts that need to occur within a system to trigger a transformative effect have different funding needs and require different forms of intervention.

Some require non-repayable grants, while others might require government subsidies or tax incentives. These funding needs also fall in different places of the risk-return spectrum.

We need to embrace a poly-capital approach: The coordination of diverse actors, strategically aligning their interventions and capital, to create a systemic funding architecture.

This includes actors varying from foundations and philanthropy, investors, private capital owners, banks, corporations, national-to-local governments, and asset managers.

“We need a coordination of actors working across the spectrum, coordinating their finance to trigger systemic transformation.”

The challenge, then, is funding the right kind of capital, to the right kind of intervention, at the right point in time.

During our Roundtable discussion, we used the case of the European agrifood sector to collectively explore how we could put a poly-capital approach into practice.

Closing remarks

The polycrisis is bigger than any of our individual interventions. It’s time to push the needle on systemic investment and embrace the power of strategic collaboration.

By coordinating our capital and tactically partnering with other actors, we can dig below the surface and start addressing root causes rather than symptoms.

Raising awareness of these issues was exactly what our Regenerative Investment Roundtable series set out to achieve. Now that we’ve made some noise, it’s time to go even further. More to be announced now.