Learning from the Past to Shape the Future – A Journey Towards Transformative Investments

Imagine that you’ve just woken up on a cold Monday morning. Your first move is to step into a hot shower, warming yourself against the chill of the air. You get dressed, make some coffee and have breakfast – some chopped up fresh fruit and greek yogurt, or maybe eggs on toast. After gathering your things you drive to work, or maybe you take the bus or train. By 09:00 you’re sitting at your well-lit desk in a heated office, computer plugged in and on, ready to start the day.

Before we even really begin our week almost all of us interact with and rely upon a series of ‘socio-technical systems’ – constellations of products and services, infrastructures and people which provide a social need, for example energy, food or mobility. These socio-technical systems make up the economic, political, social and cultural structure of society, and since becoming aligned with one another during the industrial revolution, they have produced an immense improvement in standard of living for many millions of people around the world.

Yet our world is one in crisis.

Recent evidence shows that the socio-technical systems upon which our global civilisation is based are unsustainable and unjust, and are incompatible with human flourishing in the 21st century. The global energy system privileges the use of cheap and efficient fossil fuels, the burning of which has caused atmospheric CO2 levels (among other greenhouse gasses) to rise incredibly rapidly, causing the climate crisis and associated increase in global temperatures, water acidity, frequency and severity of natural disasters. The global mobility system builds on the configuration of the energy system, locking in the use of fossil fuels as the primary means of powering privately-owned single-family motor vehicles. The global food system is designed around extractice, intensive and exploitative industrial agriculture, throwing the nitrogen cycle out of balance, degrading over a third of all Earth’s arable soils, driving tropical deforestation and accelerating extinction and biodiversity loss, all while over a third of all food produced becomes waste and 600 million people go malnourished.

Source: Sarah Reingewirtz/ZUMA Press/Newscom

We urgently need transformational change – change that fundamentally replaces, reforms or reorients our harmful and broken systems to work for life, not against it.

The scale of this task is enormous. It requires bold, ambitious thinking in a time when our leaders have grown uncomfortable challenging the status quo. It requires new tools and strategies for imagining and changing the world around us. It requires determined optimism and the belief that a better world is possible.

Deep Transitions takes aim at this need. Building on two decades of research in the field of Sustainability Transitions, Deep Transitions History undertook an unprecedented historical analysis of how fundamental changes unfolded in the past in order to construct the Deep Transitions Theory. In Deep Transitions Futures, we now seek to use this theory to not just understand change, but to create it, accelerate it, and shape its trajectory. We aim to create a Second Deep Transition – a radical shift towards sustainability, comparable in its scale to the industrial revolution of the 18th century.

Finance Steering The Sustainability Transition

The Second Deep Transition will require tremendous levels of financial investment. By some estimates the figure could be as high as USD 5-7.5 trillion per year, with between USD 3.3-4.5 trillion being needed to support emerging markets and developing countries. This is a staggering figure, representing the scale of financing needed to truly fundamentally transform almost every aspect of human civilization. Perhaps unsurprisingly, current levels of investment are nowhere near close to meeting this need. Best estimates show an investment gap of around USD 2.5 trillion per year.

Investment is an incredibly powerful tool. As a lever for change-makers it can shape the ‘free market’ in any direction desired, level the playing field between harmful but cheap practices and expensive yet sustainable ones, or directly fund the real-world development and infrastructure needed to support the Sustainability Transition.

It is time to recognise this potential and make the finance sector aware of both the need to act now to transform our societies, and of its crucial role and unique ability as a change agent to do so. We urgently need to scale up investment to fully fund the Second Deep Transition.

Although scaling up investment is an urgent and necessary first step, it is also critical to ensure that investment pushes innovation in the right direction – specifically towards systems change and not systems optimisation. While some innovations may seem to make our socio-technical systems more sustainable, many in fact only improve the efficiency of existing systems. In turn, improving efficiency often leads not to transformation, but instead to a rebound effect, as lower costs of consumption mean that people spend the same resources and consume more. This is what we call system optimisation. System change, on the other hand, doesn’t merely increase the efficiency of the current system, but instead seeks to replace it with something entirely new. As a final step, Deep Transitions theory builds on other theoretical frameworks by putting the emphasis on multiple-systems change – i.e. change that simultaneously acts and spreads across multiple socio-technical systems.

These concepts aren’t new, but they are relatively unknown within the financial industry. If we want to explore and ultimately leverage the potential of investment to create systems change, we need to engage investors themselves – the individuals, organisations, agencies and firms that manage and deploy capital. All types of investors have a role to play, from philanthropists to venture capitalists, from small family-owned firms to multinational investment banks. While our ultimate goal is for all investors, whether motivated purely by achieving a positive impact or by (also) achieving a strong financial return-on-investment, to embrace their responsibility to act for the good of the planet and its inhabitants, the reality is that even those investors most eager to shape a better future often lack the insights, theoretical frameworks, theories-of-change, strategies, tools and metrics needed to use their position to achieve transformational systems change. This is where Deep Transitions Futures comes in.

Transformative Investments For System Change

To bridge the gap between the investment community and the robust theoretical understanding embedded in Deep Transitions theory, the Deep Transitions Futures project brings together a panel of public and private investors alongside an academic research team to co-create a fundamentally new approach to investing, one which draws on the deep insights offered by Deep Transitions to identify new activities, tools and metrics for investors to deploy and experiment with in their decision-making. We call this approach Transformative Investment, a practical, applicable and auditable approach aimed at achieving systems change.

Co-creation is no easy task. To achieve our goal and make Transformative Investment real, the investors panel and the research team would need to step out of their respective comfort zones, to learn to speak the language of the other, and to collaborate across fields and industries in a dynamic and adaptive way. As a result, designing the project to maximise our chance for success was a key priority. 

Deep Transitions Futures was split into 3 core ‘blocks’ or phases of work. In the first block, the research team and panel began to develop their working relationship, focusing substantive discussions on understanding and developing expertise on the core elements of both Deep Transitions theory and the field of Sustainable Investing. This block laid the foundations for future success by facilitating learning between the two groups and ensuring that everyone had a good shared standard of knowledge of all key topics. Block 2 of the project moved the focus towards the future, with the panel and research team engaging in an in-depth process of co-creating 3 alternative future worlds – scenarios for our planet in the year 2050, these being ‘After the Frugal Turn’, ‘First Do No Harm’, and ‘From Moonshot to Earthshot’. The video below introduces the three futures. It was produced for a crowdsourcing campaign that asked a wider audience to review the future worlds based on their desirability and feasibility.  

Developing these worlds through participatory futures studies methodologies allowed the panel to recognise and render explicit the gap between current sustainable investing strategies and what is needed to achieve a desirable future. Finally, block 3 of the project turned the focus onto developing Transformative Investment itself, with the research team working with panellists to produce principles, strategies, tools and metrics that panellists could adopt and deploy within their own organisations.

Concluding the panel process, after a year-long virtual collaboration, the panel and research team met in-person to commemorate the collaboration and herald a new phase focussed on finalising the investment philosophy for transformative investments which will be launched in October 2022. 

For more information and impressions of the final panel session read the event story. To stay up to date about the launch of the investment philosophy, connect with Deep Transitions on LinkedIn and follow @DTransitions2 on Twitter.