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An increasing number of philanthropists and socially-minded investors around the world are making investments in order to generate financial returns in conjunction with social and environmental returns. Unfortunately, many investors fail to fully address the negative effects to the environment or society we might create. A well-known example illustrating this point is the distribution of insecticide-treated mosquito nets to fight malaria placing fish stock at risk of being poisoned.[1] In response to criticisms and in an effort to do better, foundations have evolved and introduced new rigor to their work. This includes using a collective impact framework, increasing transparency and trust between donors and grantees, introducing monitoring and evaluation for feedback and applying systems thinking.
There has also been an increasing awareness that positive intentions are better supported by research, greater knowledge of a complex issue and greater understanding of the risks involved. The Case Foundation have acknowledged limitations to their approach after the failure of the Playpump project to deliver on its objectives due to a technology limitation, and have since implemented a ‘systems thinking’ approach which incorporates interrelated variables to solving problems and thus better determines how to allocate capital.[2] While there is still much room for improvement in the field of philanthropy, similar processes must also be implemented in impact investments in order to ensure more robust decision making and positive outcomes.
Why Use Systems Thinking?
Systems thinking is an approach to study complex problems and behavior by understanding the interrelationships and other factors that affect the system. In other words, all parts of the system are connected, and changing a single part or how it is connected affects the entire system. Simply being aware of systems thinking helps us become better impact investors. This translates into better understanding of the resilience of the business, risks involved, the potential positive and/or negative impact within an interconnected world. It can also improve performance and create sustainable change.
David Rockefeller and Peggy Dulany, founders at Synergos’ Global Philanthropists Circle, have been champions of systems thinking as an important tool for addressing the world’s most intractable problems. With over 30 years of experience, here are a few lessons we have learnt that apply to impact investing:
Four Ways to be a Better Impact Investor
- Be open to understanding the system and your role in it
Traditionally, impact investment has focused on a small number of indicators which translate into or link to financial return. Consider the possibility that the problem tackled is a deeply entrenched and complex one, and that mapping out the system allows us to better identify all of our impact whether it be negative, neutral and/or positive. Ask different questions and determine how our participation affects the system. - Design for impact and the unexpected
Mapping out the system shows all the effects of an investment. Intervene preemptively to avoid unintended negative consequences or monitor a sensitive situation. Be ready to be surprised and put in place mechanisms to detect and manage unexpected circumstances. We can build resilience into our investments by being prepared. - Identify leverage points and lean in to the challenge of change
Using systems thinking helps us on where to intervene most effectively for better performance by spotting bottlenecks, potential problems and opportunities. It invites us to improve performance by providing other types of capital or employing the power of networks and technology. Change is never easy; however, to make a greater and better impact, we must embrace it. - Listen
In philanthropy we speak often of the power imbalance between a funder and charity. A similar dynamic can exist in impact investing. It is thus vital to solicit feedback from those whose lives you are changing. Seek out stakeholders with diverse viewpoints and interests and gather them to generate, test and implement ideas. Speak to winners and losers; listen to the hard truths. Collect feedback; challenge your assumptions and make changes based on their perspectives.
If time or cultural differences are factors, consider working with on-the-ground investment teams instead of making international ‘airplane investments’, or collaborate and co-invest with other social investors.
Synergos will be hosting a number of workshops on Impact Investing x Systems Thinking this year. We’d love to hear your thoughts. To share your views or to learn more about our work, please email [email protected]
[1] Jeffrey Gettleman. “Meant to Keep Malaria Out, Mosquito Nets are Used.” The New York Times. 24 January 2015. https://www.nytimes.com/2015/01/25/world/africa/mosquito-nets-for-malaria-spawn-new-epidemic-overfishing.html
[2] Jean Case. “The Painful Acknowledgement of Coming Up Short.” The Case Foundation. 4 May 2010. https://casefoundation.org/blog/painful-acknowledgment-coming-short/.
