Financing sustainable transitions

Transformative bundles are one of the four types of experiments we run at the DT Lab. They are focused on identifying all transformative changes, public and private investments and complementary actions needed to achieve a desired system change. These are ambitious and complex, but they are also the most explicitly intentional and direct in creating systems change. They can lead to the establishment of new partnerships and networks, the identification of new investment opportunities, and the development of new funds. The notion of a transformative bundle takes inspiration from blended finance but expands on it functionally, temporally, and spatially.

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Building on the notion of blended finance

Connecting investments to social movements, research and policy 

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Where blended finance deals exclusively within the investment sphere, transformative bundles include other forms of building and scaling sustainable innovations and destabilising the current unsustainable systems. We aim to fund transitions and bring together other transition actors, across various fields and sectors (from project developers to social movements and public institutions).

Building change into the process

Bundles will evolve over time:including which actors are involved, the actions taken, and what resources are allocated. This supports the nature of transitions, which happen concurrently and sequentially. 

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Local focus with a global awareness 

Blended finance doesn’t have to have a spatial aspect, yet all transition processes work within geographical boundaries and are connected to other spaces. Therefore, bundles consider both regional and local specifics to create effective transition processes while also maintaining an awareness of how the bundle connects to other spaces on a global scale. 

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Making bundles a success

Addressing challenges through structured learning   

Blended finance is held back by a lack of built-in monitoring and learning processes. Numerous issues within this fast-developing field could be addressed with guidance on selecting and using blended finance instruments. This is even more crucial for transformative bundles, where activities span multiple fields, disciples and areas of expertise. This complexity increases the likelihood of issues such as coherence gaps, difficulties balancing flexibility and structure, and high transaction costs. Therefore, a structured learning process, coordinated and facilitated by an intermediary actor is essential, aiding with effective adaptation and problem-solving throughout the process. 

Managing coordination, governance, and intermediation

Bundles required a high degree of coordination among diverse actors, including financial sector actors (both public institutions and private investment firms). Yet how to achieve this remains untested ground.

Alongside coordination are governance questions, such as what governance structures, strategies, and practices can best support such an initiative.

Transition bundles aim to reduce the gap between shareholders and the processes, actions, and decisions being pursued – to foster a more collaborative approach to finance. The idea is that they create a shared "commons" where stewards and beneficiaries of capital come together around specific transition processes. This will require organisations to develop new knowledge and capabilities.

Including non-monetary elements 

A carefully curated combination of financial vehicles is often required to meet the diverse investment needs of transition actors, processes, or bundles. The success of these initiatives hinge on ensuring that the right type of capital is deployed for the right purpose at the right time, with investment structures tailored for each specific context. 

Current investment vehicles generally focus on balancing return and risk, but they often overlook essential complementary actions that don’t yield direct financial returns. Bundles must leverage existing financial tools and create new vehicles to address non-monetary elements critical for achieving transformative change.

Aligning around a clear theory of change  

Bundles also require theories of change, including new metrics to inform decision-making and support continuous learning. Theories of change are essential for defining and building coalitions around specific transition pathways. Bundles will benefit most from aligning around a coherent direction, pathway, and vision for the future. This maximises resource efficiency and enhances the potential of the bundle in driving transformative change. 

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Bundles in action 

One of the principles of the DT’s Transformative Investment Philosophy is about fostering collective action towards systems change. We saw real evidence of that happening during our Engagement Week 2024, which brought together public and private investors. Under the theme of ‘Scaling experimentation: A catalyst for transformative system change’, we created the spaces and conditions for fresh exchanges between public and private actors, and aimed to build new narratives around the agency of investors in tackling transformational failure. 

We see this in TransCap’s Hallmarks of Systemic Investing with their commitment to“Coalition Building and Orchestration” focusing on “developing and nurturing a group of investors and funders committed to a shared transformational intent and theory of transformation”. As well as across other organisations from private investment to policy and beyond.

For example, in one of our interactive sessions on transformative bundles, a live demonstrator was presented that showcased how Catalonia’s Smart Specialisation Strategy and Terres de Lleida, Pirineu i Aran Shared Agenda have evolved and created a transformative pathway that can be empowered and funded through transformative bundles. 

Read the full report on the session, which first includes a detailed overview of transitions bundles, and second shows how Catalonia’s SmartSpecialisation Strategy supports transformative innovation policy and Shared Agendas, as well as a showcasing of the Terres de Lleida, Pirineu i Aran SharedAgenda based on the presentations from Tatiana Fernández, Head of Economic Strategy at Generalitat Catalunya and Teresa Botargues, Diputació deLleida.

You can also watch the video of the session. We start with Johan Schot talking about transformative bundles, then Tatiana Fernández discussing Catalonia’s Smart Specialisation Strategy, Teresa Botargues speaks about the Terres de Lleida, Pirineu i Aran Shared Agenda, and finally Diana Velasco presents the transformative pathway followed by the region of Llieda, Pirineu i Aran to advance towards a Bioeconomy strategy fostered by various niche clusters. Lastly, we move onto a panel with audience Q&A including Johan Schot, Tatiana Fernández and Richard Azarnia, co-founder of the Good Investors.