12 Principles of Transformative Investment
The Transformative Investment Philosophy contains 12 Principles for Transformative Investment which aid investors in their role of accelerating a Second Deep Transition via multi-level systems change. The principles are designed to catalyse fresh thinking, aid in investment goal-setting, strategy and process development and accelerate the broader take-up and application of Deep Transitions thinking in the investment community and broader society.
Transformation is the goal. Target systems change and deploy capital in a way that accelerates the Second Deep Transition.
Target transformative potential rather than optimise specific impact outcomes or ESG criteria. Systems change is the only way to achieve a sustainable and desirable future. Accelerating this change process would limit the magnitude of the negative outcomes of the current dominant system and draw out a desirable alternative. In this sense, transformative investing transcends definitions of impact investing and ESG investing, although it has elements in common with both these investment types. Values, governance and incentive structures would also benefit from the overall goal of transformation.
Transform the System
Focus on long-term systems change. Visualise outcomes in decades.
It may take many years of investing to achieve the impacts of systems change. Nevertheless, efforts must be made towards building desirable worlds in the long term, not towards marginal relative optimisations in the near term. Financial returns would not necessarily take as long to materialise as system-change outcomes, as markets anticipate future financial flows in asset prices. However, investment structures that allow for a patient approach, such as evergreen funds or funds that incentivise long-term holding periods, are more aligned with this principle of long-term change.
Think long term
Inspire stakeholder participation, including the ultimate owners of capital. Be accountable to them.
Invite local communities and key stakeholders – such as buyers, suppliers and workers – to have a voice in assessing transformations that may significantly affect their lives. Make a conscious effort to be transparent, to offer such stakeholders broad-based engagement in the decision-making process, and to start a discussion about how to enhance stakeholders’ and community participation (including the fair allocation of costs and benefits). Experiment, in collaboration with other investors, to determine the best way to implement this in practice. Ultimately, broad participation and ownership will lead to higher support, more understanding and greater implementation. Transparency and broad engagement are particularly relevant: transition dynamics should be grounded in a shared vision for a desirable future.
Visualise desirable future worlds.
Investors would benefit from defining the high-level characteristics of the preferred future world they seek to enable; developing, as far as possible, a visualisation of the characteristics of that future; and incorporating these in their investment strategies. The desirable worlds generated in the Panel process (see Annex 2) can provide a useful starting point. However, many more scenarios and future world visions are freely available as alternatives. Investors may also conduct similar world-building exercises to those undertaken by the Panel and research team.
Take a portfolio approach to multiple-system
Consider how to construct a portfolio (or a set of investment vehicles or policy programmes) for building a new meta-regime (for example, a circular economy) across systems. Investing across various aligned solutions can help accelerate growth and decrease risk across the portfolio, as niches can support one another.
Expect a high level of investment risk and a need for experimental capital.
Transformation comes with uncertainties. Transition pathways are hard to predict, and transformative investments are likely to be associated with a relatively high level of risk. High risks may lead to correspondingly high financial rewards (for example, in venture capital or growth investing), but this may not always be the case. To ensure transformative solutions can be scaled, experimental capital must be incorporated into blended finance structures,
either alone or in a layered structure. This kind of
funding can help kickstart solutions and fund proofs
of concept. Funding could take the form of donations,
concessionary capital, public funding or in-kind
support. Experimental capital can create transformative
investment opportunities that then become
attractive to market-driven investors.
Actively consider each investment in its relationship with ongoing Deep Transition dynamics
Deep Transitions require multiple change processesinvolving many interacting actors over a long periodand across a wide range of spatial contexts. Investmentsalone cannot create or steer a Deep Transition process. Instead, they can contribute to ongoing change processes and may be able to modulate theirdirection. Contributions (in this case, investments)can be made more effective by assessing if and howthey connect to and influence transition dynamics.By focusing on transition-related intervention pointsand associated transformative outcomes, it is possibleto develop and exploit a deeper understanding of systems change and Deep Transition dynamics inthe investment process.
Contextualise in transition dynamics
Avoid lock-in solutions that impede deeper
Investors and science, technology and innovation policy makers should consider carefully whether investments support systems optimisation or systems change, not just in a single system but across multiple systems. At times, investing in systems optimisation may be necessary as a stepping stone towards systems change. However, it could also end up blocking the potential for transformation and locking systems into unsustainable pathways, thus preventing change from happening. The potential lock-in of existing systems and the clash between short-term systems optimisation and long-term systems change should be taken into account when considering potential investments.
Open up, don't lock in
Foster collective action among actors who
commit to systems change.
Transformational change requires parallel shifts in all aspects of a socio-technical system. Investors and policy makers gain from seeking opportunities to partner and collaborate with one another and with other actors to influence a system on multiple levels. One example of such an opportunity might be creating transition-enabling bundles, a package of complementary actions that includes investments and policy commitments. Collaborations can be established between investors with different risk– reward expectations (for example, through blended finance structures), between investors and policy makers, and with buyers, suppliers, intermediaries and other market participants. These collaborations can help decrease the inherent risk of investing in new niches and accelerating their expansion, and they may help to create investable opportunities where there are gaps.
Be a world-builder through
Transform the System
Think Long Term
Include & Give Voice
Visualise Desirable Futures
Enhance Portfolio Synergies
Contextualise in Transition Dynamics
Open up, don't lock in
Be a world builder through collective action
Experiment with transformative tools
Foster interdisciplinary research
Take a deep dive or quick tour of Transformative Investment
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