Talk of “systems change” might sound revolutionary, but it can also be a powerful force for good – if we figure out what it actually means, says Matt Ripley, TGE’s head of impact services

Calls for systems change are en vogue – and it’s no longer just/activists saying it out loud. Over the last decade, the investment community has gone from largely ignoring social issues, to then avoiding negative practices and then supporting those with positive outcomes. And now investors have gone further by talking up their role in contributing to “systems change” [see note 1].

But what does systems change actually mean beyond a vague notion of making financial systems work better for people and planet, not just profit? And in a world where most investors want to get to the specifics as quickly as they can, are we doing enough to bridge the rhetoric-reality gap?

Systems change remains a slippery concept to put into practice. There is no one way to change complex systems – but a shared understanding of some common features of what may, or may not, constitute systems change will help. Without this, at best we’ll all be stuck speaking at cross purposes, and at worst we end up in a world of ‘systems wash’ – incremental change dressed up as systems change.

But what does systems change actually mean beyond a vague notion of making financial systems work better for people and planet, not just profit?

Here at the Good Economy, we think a systems lens has implications for all three core distinguishing features of an impact investment.

First, measurement. Investors are getting better at capturing downstream ‘widgets’– the services delivered and people reached by investees [note 2]. They’re not yet so good at understanding what those widgets add up to, or factoring in the effect of upstream practices like investment structures [note 3]. But systems thinking teaches us that the whole is greater than sum of its parts [note 4]. So we believe the next frontier in impact measurement is societal change – moving beyond counting products and practices to understand how they affect system-level structural issues like poverty, power, participation and the (re)distribution of resources.

Second, Intentionality. Systems change means being specific – what parts of the system are we trying to alter, and how? Building a generic ecosystem around impact investing is not the same as systems change, which is a more intentional process to “shift the conditions that hold a problem in place” [note 5]. Taking systems change into investment theses will require fusing existing technocratic approaches with more transformational goals aimed at addressing issues such as rising inequality, environmental degradation, climate change, and racial discrimination [note 6].

Third, additionality. Impact investors aim to contribute to outcomes that would not have happened anyway. This is not about sole attribution – a fallacy when any system change is beyond the influence of any one actor – but about making a positive difference. It’s fiendishly difficult to isolate a specific ‘tipping point’ or threshold to say whether a system has actually changed. Instead, the challenge is make investment decisions that align with a desired direction of direction of travel – towards the system change – rather than away from it. This also means looking at whole-of-portfolio alignment, over time, based on the notion that systems change through ‘emergence’ – not the result of any one individual investment – as the outcome of things interacting together [note 4].

Got some thoughts on systems change? We’d be interested to hear from you. Join the conversation using share icons above or send me an email.

We’ll soon be publishing a paper on applying systems lens to the issue of good jobs. Sign up to our newsletter and we’ll let you know when it’s published.

If you want to delve deeper into the role of systems change in IMM:

1. See this Impact Alpha article for the lowdown on the meaning of systems change (paywall)
2. This piece I co-wrote for the Standford Social Innovation Review includes some useful info on “widgets”
3. See the Predistribution Initiative for thinking on investment structures
4. A great piece on the tools of a systems thinker on Medium
5. John Kania et al offer an Actionable Framework for Catalyzing Systems Change
6. Cedric de Beer on measuring what truly matters