(Note: William Burckart and Steve Lydenberg are both fellows of High Meadows Institute)
“It’s time for a new way to think about investing, one that can contend with the complex challenges we face in the 21st century,” authors William Burckart and Steven Lydenberg write in the introduction to their new book, 21st Century Investing: Redirecting Financial Strategies to Drive Systems Change.
For much of the 20th century, investors followed a conventional approach, with the straightforward goals of maximizing returns and managing portfolio risk. Systemic issues facing society were considered externalities that were beyond their purview.
But with the 21st century came a rise in complex and interconnected challenges to our social, financial and environmental systems, from income inequality to climate change to gender and racial disparities, that are global and destabilizing and threaten long-term investments in ways that traditional investing is unequipped to address.
Faced with these challenges, many investors have turned to a sustainable approach, which takes into consideration environmental, social and governance factors, with a goal of minimizing harm while still achieving financial returns.
But is sustainable investing enough to course-correct from the path we are headed down? Sustainable investors, Burckart and Lydenberg argue, may try to keep their portfolios “clean” by avoiding certain stocks like tobacco or fossil fuels, but they stop short of supporting true systems transformation.
Instead, the authors propose a new approach: system-level investing.
Systems, according to the authors, refers to “those large social, financial, and environmental foundations of society necessary for any successful investment.” These range from healthcare, nondiscriminatory employment and consumer safety to fair markets and climate stability. All of these systems are interconnected and a threat to one can lead to instability in others.
System-level investors recognize that their investments have an impact on the world around them and that supporting and strengthening the resilience of our social, financial and environmental systems is not only good for society but also for the long-term health of their investments. They aim not just to mitigate negative impacts but to actually work to solve the underlying systemic issues at cause.
The book explores the “what, why, and how” of the system-level approach: what it means, why it’s important and how to incorporate it into investment practices. The authors encourage investors to recognize that their investments have impacts beyond their portfolio and to use a more diverse set of tools and techniques designed for system-level influence.
The first six chapters offer a roadmap for investors looking to apply a system-level approach. Many of these steps will be familiar to any investor: set goals, decide where to focus, allocate assets, apply investment tools, leverage advanced techniques and evaluate results. Along the way, the authors guide investors to build on their current strategies to integrate a system-level perspective and provide examples of how investors can put this new approach into action.
Chapter seven takes a more in-depth look at applying this new lens to income inequality, outlining the large-scale causes of our current level of disparity before exploring how a system-level approach can be used to create the paradigm shift necessary to lessen it.
The final chapter profiles six investors, including Japan’s Government Pension Investment Fund and the Rockefeller Brothers Fund, that are using a wide range of approaches to transition their investments to a system-level framework, and examines how the lessons learned from them can be applied to other real-world scenarios.
Burckart and Lydenberg, co-founders of The Investment Integration Project (TIIP), an applied research and consulting services firm, bring decades of experience in the fields of impact investing and systemic risk to their bold and timely new approach to investment. The steps outlined in the book offer a clear and detailed path forward for those trying to navigate and shape a new, more purpose-driven future and provide readers with the tools to be strategic investors.