What is systemic investing?

What is systemic investing? 

Johannes Tschiderer: Put simply, systemic investing is an emerging practice which seeks to bring systems thinking – a way of looking at the world in terms of relationships and interdependencies rather than isolated parts – into finance. It seeks to make finance better for the world by considering not just single elements of a problem but the wider system, its patterns and dynamic behaviours. That said, today there is no widely agreed-upon definition of systemic investing. 

At the TransCap Initiative, we aim to build the field for systemic investing and in fact, our own definition is still evolving. What we tend to use most often at the moment is this: systemic investing is the strategic deployment of diverse forms of capital, guided by a systemic theory of transformation and nested within a comprehensive systems intervention approach, for the purpose of funding the transformation of human and natural systems.

Variations of this idea are gaining traction in different contexts and geographies, and there are other initiatives working at the nexus of finance and (socio-technical) systems change. But they all slightly vary in approach and use different terminology, such as system-level investing, systems-based investing, and transformative investment. 

Why does it matter? Why are people interested in this concept now? 

Johannes Tschiderer: We live in the era of polycrisis, the coming together of grand challenges like climate change, biodiversity loss, water scarcity, food insecurity, malnutrition, mental illness and poverty. All of these have different root causes, protagonists and impacts, yet they also all share one fundamental trait: they are complex systemic problems. As such, they call for systemic strategies designed for complexity.

This means the way we deploy money for impact also needs to be designed for complexity, be it market-rate investment capital, concessional finance, philanthropic grants or other forms of funding. But all too often, capital is rooted in a linear, reductionist form of logic and doesn’t flow systemically – it flows as standardised venture capital into a startup working on a single-point solution, as project finance to a single piece of physical infrastructure, or as a grant to a nonprofit that does the much-needed work of treating the symptoms of structural inequalities but has limited ability to address root causes. This single-asset perspective sits at odds with what is required to effectively grapple with the polycrisis. 

Systemic investing presents a different way to deploy capital for transformative impact that takes account of this fundamental disconnect. It does so by recognising that addressing the polycrisis is not only about mobilising more capital; it is also about getting much smarter about how we deploy it. It foresees deploying different kinds of capital from different types of funders to enable interventions in multiple nodes of a system in a highly strategic and synergistic manner, and to reimagine how investors collaborate with others, generate insights and conceptualise and measure impact.

Transforming human systems is the defining challenge of our time. There is an urgent need to rethink how we fund such systems transformation. Systemic investing answers this call.

The way we deploy money for impact also needs to be designed for complexity

What's a good example of systemic investing in action?

Johannes Tschiderer: The field of systemic investing is only just emerging, but some organisations have been doing it for a while. For instance, in 2009 a programme to tackle food waste in the United States combined philanthropic grants, direct investments in startups, and the formation of ReFED, a nonprofit that aims to support the orchestrated deployment of financial capital. Millions of dollars from this initiative catalysed billions in annual investment into a web of complementary solutions. This went way beyond attracting good “deal flow”, and involved convening cross-sector stakeholders to harness collective intelligence and share information and resources, capturing new data on food waste across the entire food value chain and mobilising different types of financial capital into promising solutions. 

At the TransCap Initiative, we are developing case studies to highlight those already doing systemic investing (or elements of it). Additionally, we are experimenting ourselves with applying the core ideas of systemic investing in different contexts. For instance, we are running a systemic investment programme aimed at transforming the personal transportation system in Switzerland. On this project we involved stakeholders to map the current and future system, identified leverage points, and developed an investment strategy informed by hypotheses about how to transition the system from the current reality to the desired future. Based on this we are now in the process of building a pipeline of financeable interventions and structuring funding vehicles.

• Kieron Boyle and William Burckart: For a healthier society, we need more system-level investing

What are the barriers to doing it properly – or doing it at all?

Johannes Tschiderer: The DNA of systemic investing is still investing: the deployment of capital with the expectation of recouping the principal and generating some form of return. That said, systemic investing also profoundly challenges traditional (impact) finance in various ways: 

1. It broadens the purpose of investing. The goal is not only to reduce greenhouse gas emissions or optimise any other singular impact metric. Achieving true and lasting sustainability requires that we adopt a holistic notion of impact, one that goes beyond tech solutionism and the risk-frame of ESG, and champions systems health instead.

2. It redesigns the modus operandi. Traditional impact finance runs on a set of inherently unsystemic structures and practices. Systemic investing calls for a new way of operating, one that prizes collaboration over competition, value creation over risk reduction, and collective strategic intelligence over proprietary deal flow.

3. It works with an expansive definition of capital. Because of the integrated nature of environmental and social change, all types of capital need to be part of the toolbox: financial capital in all its forms (market-rate, concessional, philanthropic, public finance and commercial capital) as well as social, human and political capital. 

This is why we define systemic investing as a specific and overarching logic, rather than a loose description of approach. It requires mindsets, principles, practices and infrastructures that are distinct from the status quo of funding and financing. “Doing” systemic investing is therefore a profound undertaking that requires humility to let go of long-established beliefs, openness to experimentation and strongly iterative work, and a willingness to learn from and collaborate with a broad variety of actors. 

The DNA of systemic investing is still investing... that said it also profoundly challenges traditional finance

How can an investor get started with this approach? 

Johannes Tschiderer: A first wave of pioneers – mostly progressive foundations and private-wealth impact investors – have started to put some of these ideas into practice. They map systems, work with holistic intervention strategies, and deploy both capital and grants to fund technology development, business model innovation, education, advocacy and community engagement. In other words, they have started to experiment with what we call systemic investing and provide a good reference point for others.

However, systemic investing remains nascent. We need to further develop its conceptual underpinnings, put the theory into practice through real-world prototyping, and build the field through education, convening and storytelling. TransCap Initiative’s continually evolving key concepts and case studies may provide a starting point for investors to get started with systemic investing. Investors may also join the community of pioneering impact investors, asset owners, investment managers and innovators that came together at the inaugural Systemic Investing Summit at the beginning of this year, by keeping an eye out for announcements about upcoming events. 

• Johannes Tschiderer is a Research & Investment Associate at the TransCap Initiative.

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