12 Principles for change

Target transformative potential rather than optimising for specific impact outcomes or ESG criteria. Systems change is the only way to achieve a sustainable and desirable future. An acceleration of this transition would limit the magnitude of the negative outcomes of the current dominant system. Transformative investing transcends definitions of impact investing and ESG investing, although it has elements in common with each. Aligning values, governance and incentive structures to this goal would also be beneficial.

Systems change impacts may take many years of investing and implementing to be realised. A direct effort towards building desirable worlds in the long-term, not towards marginal relative improvements in the near-term is needed. Financial returns may not take as long to materialise as systems change outcomes, as markets price-in anticipated future financial flows. However, investment structures that allow for a patient approach, such as evergreen funds or funds incentivising long hold periods, are more aligned with this principle.

Give key stakeholders and communities including buyers, suppliers and workers a voice in the assessment of desired transformations that may significantly affect their lives. Make a conscious effort towards transparency, broad-based engagement in the decision-making process, and discuss how to enhance stakeholders and community participation (including participating in ownership and financial rewards where applicable). Experiment more, in collaboration with other investors, to determine the best way to implement this. Broad participation and ownership will lead to higher support, more learning and a higher success rate. Transparency and broad engagement are particularly relevant: influencing transition dynamics should be grounded in a shared vision of a desirable future.

Investors should define high-level characteristics of the preferred future world they are seeking to enable and develop, and as far as possible include a visualisation of that future within their investment strategies. The desirable worlds generated in the Panel process may provide a useful reference or starting point for this, and there are many more scenarios and future worlds freely available as alternative visualisations. Investors may also conduct a similar world building exercise to that undertaken by the Panel and research team.

Consider how to construct a portfolio (or a set of investment vehicles or policy programmes) necessary for building up a new meta-regime (for example, circular economy) across systems. Investing across a variety of aligned solutions can help accelerate growth and decrease risk across the portfolio, as niches may support one-another.

Transformation comes with uncertainties. Transition pathways are hard to predict, and transformative investments are likely to be associated with a relatively high overall level of risk. High risks may correspond with high expected financial rewards, but this may not always be the case. To ensure transformative solutions can scale, we also see the need for some standalone experimental capital and blended finance structures. This can help get some solutions off the ground and fund proofs of concept that create transformative investment opportunities that become attractive to a market-driven risk/reward approach. The tools of assessment and enhancement of transformative potential, as well as the continuous learning generated, should strengthen the ability of such investments to scale quicker than expected once the initial phase is de-risked.

Deep Transitions require multiple change processes involving many interacting actors unfolding across a long time period and a wide range of spatial contexts. Investments alone cannot create or steer a Deep Transition process, instead they can contribute to an ongoing change process and may modulate its direction. Invest more effectively by assessing whether and how it connects and influences transition dynamics. Focus on transition-related intervention points and associated transformative outcomes and develop and exploit a deeper understanding of systems change and Deep Transition dynamics in the investment process.

Investors, as well as science, technology and innovation policy makers should consider carefully whether investments support systems optimisation or systems change, not just in one system but across multiple. Investing in systems optimisation may at times be needed, either as a stepping-stone towards systems change or to limit ongoing damage, however, it could also block the potential for transformation, and lock systems into unsustainable pathways. The potential lock-in of existing systems, and a clash between options should be taken into account when considering potential investments.

Transformational change requires parallel shifts in all aspects of a socio-technical regime. Investors and policy makers gain by partnering and collaborating with one another and other actors to influence the system on multiple levels, such as through creating transition-enabling bundles (a package of complementary actions including investments and policy commitments). Collaborations can happen between investors with different risk/reward expectations (for example, through blended finance structures), between investors and policy makers, and with buyers, suppliers, intermediaries and other market participants. This may decrease the inherent risk of investing in new niches and accelerate their expansion, helping create investable opportunities where there are currently gaps.

Play with transformative investment tools and methods from the Deep Transitions framework. Contribute to their development as well as that of additional practices over time. Help strengthen the field of transformative investment and enhance its applicability to a broader base of investors.

To support transformative investment there is a need for experimentation. Sustained interdisciplinary collaboration is a vital part of the continued research effort to assess, measure and monitor investments in terms of their transformational potential and performance over time. Learning, and unlearning needs to happen both in-house and across actors. The process requires, among other things, the direct involvement of academic research and knowledge about Deep Transition dynamics. Academic research, tested by live investment practices, builds a body of knowledge and a collective resource of tools, metrics and cases for broad public consumption. Fruitful conflict between these two cultures seeds a dynamic and creative learning process. Such a connection between research and investment practices, and inviting in other disciplines as partners in experimentation, will deepen and develop the academic research agenda, while enriching investment practices with systems transition knowledge.

Make all the lessons, data and insights, successes and failures, near misses, scrapes, surprises and unexpected outcomes openly available. Foster replication and subsequent take-up by many investors and science, technology and innovation policy makers. Generosity, curiosity, vulnerability and the willingness to share with the competition are needed for a radical yet credible new transformative investment process. This gives us a chance to think and act more ambitiously and collaboratively, in order to achieve systems change that accelerates the Second Deep Transition while we still have time.