Introduction to systemic investing – an explainer

The biggest problems facing the world, social inequity and climate breakdown, are system failures. Traditional approaches fall short when it comes to tackling issues that involve complexity. Impact solutions which only target symptoms (as opposed to root causes) can be too narrow leading to short term fixes, and unintended consequences. This is where the concept of "systems change" comes into play.

What is a system?

First, it is useful to consider what a system is. A system is a group of related things that work together as a whole. Systems exist across all areas of our lives – for example in how we organise our food, transport or healthcare . At Snowball, our goal is to influence and change the financial system.

What is systems change?

Systems change is a holistic and dynamic approach to addressing problems. It acknowledges that many of the challenges we face are not isolated incidents but rather outcomes of intricate relationships and feedback loops. We can use system thinking to understand and influence systems to contribute to better quality, more sustainable and longer-term change.

How do we think systemically?

Communities and indigenous populations have always used their knowledge to respond to complex problems. Much of the practice and study of systems thinking which is commonly cited however comes from the work of an environmental scientist Donella Meadows published, in particular in two texts “Limits to Growth”, and “Thinking in Systems”. Her work emphasised several principles which are commonly used by impact investors today.

1. Interconnectedness. A change in one part of the system can ripple through and affect other parts, often in unexpected ways.

2. Leverage points: Places within a system where small interventions can lead to significant shifts. These points are not easy to find but offer the most impactful opportunity for intervention.

3. Feedback loops. Positive feedback loops amplify change, while negative feedback loops act as stabilising forces to keep the problem or status quo in place.

4. Emergence. When patterns start to arise from the interactions of all the different components in a system, we can start to see emergent behaviour. Understanding this is key to influencing outcomes.

Investing systemically

Thinking systemically about how we invest is one of the key levers of change we can turn. Systemic investing (also known as transformative investing, or impact investing) seeks to address complex social and environmental issues by targeting the root causes and systemic challenges that cause these problems.

The TransCap Initiative is an organisation which is bringing systems thinking into investment. Using their framework, here is a set of questions we can use when setting an investment strategy which integrates impact alongside risk and return.

• At Snowball, what future do we want to build? What does better investing look like in practice?

• Where could relatively small investments trigger a larger change that becomes irreversible, where feedback loops act as amplifiers?

• How can we channel investments into a diverse range of interventions? How can we maximise the aggregate effectiveness of those investments?

• How can we align with other people who are not investors, but are working to achieve the same mission? Which groups and people outside investment could help us?

• How do we build the Snowball portfolio so that our investments mutually reinforce the impact potential of each other?

• How can we influence traditional investors to stop seeing the real world as separate (as an “externality”)?

• We don’t just use impact data for reporting. We use it to make decisions. How can we use information from our portfolio investments to help us understand where the next most impactful investment should be? Analytical tools include systems mapping, theory of change, causal loop diagrams, stock and flow analysis, the iceberg model, the three horizons model, scenario analysis and the multi-level perspective model.

• If we look beyond an individual asset, what is the combined effect of our portfolio of investments? By constructing a multi-asset portfolio, we have demonstrated it is possible to generate attractive financial returns and measurable impact in every asset class. We have created a product which compares favourably to mainstream investment products which don’t integrate impact. Investors can choose don’t integrate impact. Investors can choose to contribute to positive impact without risking their own financial security. As we build Snowball and make it available to retail investors, we believe this will influence change in the wider financial system.

Working systemically

How we run Snowball and the fund is critical, alongside our investment approach. We are ‘purpose built’ to contribute to positive impact. This means we considered how the design of the Snowball fund can also contribute to change in the financial system. Our design is rooted in the following concepts.

1. Non-extractive approach to fees and profit

2. Mission-locked commitment to integrate measurable impact alongside risk and return

3. Growth mindset, transparency and accountability

4. Modelling more equitable leadership and culture

5. Fair work and pay

Donella Meadows told us to “pay attention to what is important, not just what is quantifiable, to stay humble, and to stay a learner”. The last point in particular is a guiding value at Snowball, as we seek to learn and collaborate with others working to influence the financial system.

If you have feedback or thoughts on this topic, please email hello@snowball.im