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System Change Investing has the potential to be the highest impact SRI

System Change Investing has the potential to be the highest impact SRI

Shifting the focus from company change to system change.

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If an asset manager were contemplating the ideal fund in the Sustainable/Responsible Investing (SRI) area, they probably would have at least three requirements: outstanding financial performance, highest possible sustainability benefits and market leadership positioning. System Change Investing (SCI) funds can provide these benefits. SCI represents the most significant SRI transformation in 20 years. It has the potential to capture a large share of the over $20 trillion global SRI market. Nearly all ESG research, SRI funds and corporate sustainability strategies are focused on reducing negative environmental and social impacts (i.e. company change), for example, by lowering pollution and selling low-impact products. But flawed economic and political systems compel all companies to degrade the environment and society, mainly by not holding them fully responsible. In competitive markets, companies cannot voluntarily mitigate all negative impacts and remain in business. Flawed systems unintentionally create a situation where companies must degrade the environment and society to survive. There are many specific systems flaws that cause this. For example, the failure to hold businesses responsible for externalities often makes it impossible to eliminate these negative impacts. Time value of money frequently compels companies to treat future people and life support systems as if they were less valuable than present society. Limited liability does not hold business owners fully responsible for negative impacts. Placing shareholders ahead of all other stakeholders often compels companies to negatively impact employees, customers and other stakeholders. Focusing on economic growth, instead of the actual well-being of society, also drives environmental and social degradation. Allowing regulated entities to inappropriately influence government frequently makes it impossible for regulators to hold companies fully responsible for negative impacts. These and many other system flaws compel companies to degrade the environment and society, which ultimately degrades business, investors and the economy. Very generally speaking, companies can mitigate about 20 percent of short-term and long-term, tangible and intangible,

negative environmental and social impacts in a profit-neutral or profit-enhancing manner. Beyond this point, rising mitigation costs often reduce profitability. If companies continue reducing negative impacts, they will put themselves out of business long before reaching full impact mitigation. Beyond a certain point, voluntary corporate responsibility equals voluntary corporate suicide. If companies continue down this path they will put themselves out of business long before reaching full impact mitigation. Flawed systems, and the reductionistic thinking that created them, are the root causes of the major environmental, social and economic challenges facing humanity. System change probably represents over 80% of the sustainability solution. But it gets relatively little attention compared to company change. There are few SRI funds focused on sector-level system change, and even fewer, if any, focused on overarching economic and political system-level change. SCI shifts the focus from company change to system change. The UN Sustainable Development Goals (SDGs) are one of the most important sustainability movement milestones. By establishing a vision of sustainable society, they will inspire innovative national and corporate sustainability strategies. System change is the most important innovation needed. The SDGs, and especially the 2030 SDG targets, cannot be achieved without it. The environmental, social and economic problems addressed by the SDGs have a common root cause – flawed systems. Therefore, they have a common solution – evolving systems into sustainable forms. Focusing national, corporate and NGO sustainability strategies on root causes will greatly accelerate SDG achievement. Many companies are pursuing business opportunities related to the SDGs. But flawed economic and political systems severely inhibit their ability to achieve the goals. System change will greatly expand and accelerate SDG-related business opportunities by frequently making them the profit-maximizing strategies. The research needed to produce SCI funds could be called ESGS (Environmental, Social, Governance, Systemic). ESGS and SCI are general concepts, like ESG and SRI. Total Corporate Responsibility (TCR®) is a specific ESGS research and SCI fund development methodology. The name refers to companies acting in a fully responsible manner by eliminating all negative environmental and social impacts. System change

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