The power of collaboration: How public and private investors can align investments to drive systemic change

We have spoken with Melbourne-based entrepreneur and regenerative finance advocate Kaj Löfgren and leading economist and transformative investment researcher Caetano Penna, to uncover how public and private investors can align to drive system change.

Moving beyond blended finance: Transition bundles as a driving force

Recently, systemic or transformative investment has emerged as a new approach to addressing global challenges. Unlike traditional forms of impact investing, transformative investment aims to fundamentally alter the systems and institutions that shape society. 

Through Regen Melbourne, Kaj Löfgren focuses on revitalising waterways, building a resilient food system, and developing regenerative neighbourhoods. He emphasises, “It is crucial to shift from traditional finance paradigms to prioritise systemic transformations over mere incremental changes. This means rethinking how we align financial resources to drive profound, long-term changes.”  

By focusing on deep, structural changes—whether in energy, transport, or food systems—this new transformative approach to finance seeks to shift the underlying rules that govern how industries and societies operate. Central to this trend is the collaboration between public and private investors, whose aligned efforts can accelerate the transition to a more sustainable, equitable future. 

According to Caetano Penna, one of the leading authors of the Transformative Investment Philosophy, transition bundles form a key element in this process as they are designed to bring together diverse resources and stakeholders to drive systemic change.

“Transition bundles focus on creating change across different areas integrating a mix of activities, from policy to industry-level shifts and even broader societal changes. They aim to address challenges as a whole”, outlines Caetano Penna.

Unlike blended finance, which brings together public and private investors to share risks and increase funding for impactful projects, transition bundles aim to align diverse investments with long-term transformative outcomes. This goes beyond funding individual projects and targets broader structural shifts across sectors instead.  

“Another key difference is the governance structure behind these bundles, meaning the way decisions are made and investments are managed. Unlike traditional finance models, transition bundles require a longer-term view which helps ensure that investments are coordinated differently and geared towards impact generation”, states Caetano Penna.

Rethinking investment: From short-term gains to long-term value creation 

This shift in perspective differs from the finance industry's conventional practices, which typically emphasise short-term gains, isolated investments, and narrow risk assessments.

As Kaj Löfgren puts it, “the traditional finance paradigm is based on optimising an economic machine which has been incredibly powerful in driving towards its intended goal: profits and growth.” 

Rethinking these principles demands a fundamental revaluation of investment structures, evaluation methods and how risks and opportunities are currently priced. “If we’re only valuing natural assets, like rivers, in their current state, we're missing the broader liabilities—like urban heating, mental health decline—that are currently seen as peripheral but are actually core to the conversation”. Löfgren continues, “we're also failing to capture the unpriced financial upside of regenerated ecosystems,” and emphasises that there is a need to move toward a multi-dimensional view of value and transformation. 

“Both public and private investors must recognise that current investment practices often fail to account for climate risks and impacts”, states Caetano Penna. He continues, “investments that continue to overlook these realities—such as those in fossil fuels—will inevitably yield lower returns in the future as climate effects intensify.”  

There are clear opportunities in adopting this new systemic approach to investing as it resonates not only with public investors but also with private entities engaged in impact investing, ESG, thematic investments, and philanthropic foundations. “A common criticism is that these efforts often fail to achieve their intended impact. However, by embracing a transformative investment philosophy, investors can fulfil their promises and avoid accusations of greenwashing, ultimately delivering on the publicised benefits,” states Caetano Penna.

Making transformative investment investable

While it is clear that a shift in focus is required with a more comprehensive view that includes long-term climate impacts and the financial benefits of regenerated ecosystems, the question remains: how can this be made investable?  

The collaboration between public and private investors does offer opportunities, yet it also presents significant challenges. The most pressing of these is aligning the objectives and timelines of both sectors as Kaj Löfgren confirms, “The challenge is building transactions that show how short-term capital can meet long-term potential. That’s the work.” 

In other words, to attract private investors, transition bundles must include elements that promise financial returns and that initially a balance between long-term gains and shorter-term returns must be established. Caetano Penna states that, “the bundle should foster synergy among investments, meaning that success in one area can leverage and boost returns in another, offering a strategic advantage in portfolio management.”  

He emphasises that it is the combination of incremental and systemic change that creates lasting transformation, “for example, investing in electric cars should be paired with initiatives that shift societal attitudes towards car ownership, like promoting car-sharing models.” Achieving such successful transition bundles requires collaboration among diverse stakeholders, including policymakers and private investors. 

In addition, Kaj Löfgren concludes that accurately pricing liabilities and opportunities is a critical starting point—something where current practices fall short. “How do we capture future value? That’s where the conversation about making things investible gets creative,” he points out.

"We will keep walking. It is up to them to show up”

In conclusion, Caetano Penna and Kaj Löfgren agree that impact investors do not lack ambition or sincerity, but that they often operate within flawed frameworks that hinder their ability to achieve lasting change. The transformative investment approach aims to respond to this by offering a new research-backed frame of reference with new rules for reshaping the financial system itself. 

Additionally, Kaj Löfgren provides a nuanced view on the role of finance and engaging investors in systemic change to begin with, “Finance should be seen as just one tool among many in the broader system of change, rather than as a standalone solution. It is ‘one of the vehicles’ that needs to be engaged within a comprehensive strategy.” 

Rather than relying solely on lobbying, which according to Löfgren can be an ‘unsystemic and degenerative’ approach, it is important to build momentum and demonstrate progress, which will attract financial backing over time. 

“The work must continue regardless of immediate financial backing,” he says. “As they see the organising happening, what once seemed impossible becomes inevitable. Investors must realise that we will keep walking and ultimately, it’s up to them to show up”.

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Written By Jenny Witte

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