Transformative Investment: Unleashing the Transformative Power of Capital
Impact and ESG investment practices are yielding positive results, but tend to favour system optimisation over deeper and more fundamental transformations. Even the most ambitious investors often find themselves constrained by rigid structures, narrow definitions and twisted incentives that do not leverage the ways in which lasting change can be achieved. A new approach to investment is needed. Transformative Investment is an answer to this need.
Current Practices
Tend to target short-term positive impact whilst seeking (above) market rate return on investment. Investment is seen as a means to treating a symptom (e.g. global warming), which brings about short-term remedy but no long-term systemic change. For example, creating efficiencies in an industrial manufacturing process.
Consider the risks and outcomes of an investment in terms of set, easily quantifiable environmental, social and governance factors, such as CO2 emissions avoided, or the number of people given access to power.
Invest in individual sectors and seek to make progress on discrete challenges within single systems. For example, through deep yet siloed engagement with agritech or renewable energy.
Investors tend to work in isolation on the basis of as-presented investment opportunities
Transformative Investment
Target opportunities to amplify positive impact within multiple dynamic systems. Investment is seen as a means to stretch the potential and accelerate the rate of ongoing transformation processes by realising investments that intervene in key leverage points of single or multiple systems. For example, the transition to a production and consumption model of more durable and shared-use goods.
Consider the outcomes of an investment in terms of the impact on the underlying and guiding rules embedded within a system. For example, replacing the current dominant model of individualised car ownership with cars as a shared mobility service.
Invest across multiple sectors and systems, seek to understand new innovations, products and solutions as opportunities that exist not in isolation, but within a wider web of interwoven systems
Investors are encouraged to collaborate among each other and with other actors, such as the public sphere and other organisations, to contribute to creating solutions and investment opportunities.
Transformative Investment Practices
Transformative Investment stands on the shoulders of over a century of climate science, political action, investor frameworks, and academic research. It is immediately informed by and connected to two related projects: the Transformative Innovation Policy Consortium and the Deep Transitions project.
By leveraging the insights of the Deep Transitions framework, Transformative Investment takes aim squarely at enabling and accelerating systems change. It empowers investors to break free of the rigid constraints they operate within, builds upon the seeds of best practice already established by front runners within the industry, and provides them with a springboard for deploying capital for transformation.
A Glossary of Key Terms
Transformative Investments are long-term investments that trigger profound multi-dimensional change in one or more socio-technical systems. The Transformative Investment Philosophy proposes new principles, tools and metrics for realising this type of investment and aims at accelerating long-term system change and a deep transition towards sustainability. The Transformative Investment Philosophy is the result of a 1,5-year long co-creation process of the Deep Transitions research team and the Global Investors Panel - a cohort of 16 public and private investors from all over the world.
A Deep Transition is a series of interconnected system changes that transform society in a fundamental way. The First Deep Transition was the Industrial Revolution, and it is still ongoing today.
The Industrial Revolution led to unprecedented economic growth, prosperity and innovation. However, its principles (or rules) also caused some of the major challenges we are facing today, such as climate change, biodiversity loss and social inequality.
The underlying principles of the First Deep Transition are deeply ingrained in all aspects of everyday life.Therefore, incremental change is not enough. A fundamental shift is necessary to bring about a Second Deep Transition: a sustainability revolution.
Socio-technical systems provide basic needs, such as energy, mobility, and food. As such, they dictate everyday behaviour, from our modes of transport to the food we consume and the values we hold. Our current socio-technical systems are based on a series of unsustainable practices (or 'rules' in Deep Transitions thinking), such as fossil fuel dependance, globalisation, linear mass production and mass consumption. A first step towards investing successfully in bringing about a Second Deep Transition is thus to apply a systems perspective.
System optimisation, such as productivity improvements, can generate short-term positive effects. However, it ultimately preserves the unsustainable configuration of the existing system, and thus cannot bring the fundamental shift needed to address present-day challenges of climate change, biodiversity loss and growing inequality.
System change, instead, enables a fundamental reconfiguration of the system and fosters the emergence of new sustainable principles (rules) in niches that can, in time, provide viable alternatives to the unsustainable practices of the First Deep Transition.
Changing one system in isolation will not bring about a Second Deep Transition. For a sustainability revolution to take root, a focus on transforming multiple systems is needed. Deep Transitions thinking is geared towards multiple systems changes that can challenge and disrupt current unsustainable systems and replace them with sustainable alternatives.
Take a deep dive or quick tour of Transformative Investment
Download the full Transformative Investment Philosophy for a deep dive into its background, process, and impact or the Quick Guide for initial understanding.
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