Deep Transitions Global Investors Panel marks run up to launching Transformative Investment Philosophy with first in-person gathering (2024)

Impact and ESG investment practices have gained traction and are crucial for realising the tremendous expenses needed for tackling global challenges such as climate change and growing inequality. However, in order to support global net-zero targets or the trajectory stipulated in the Sustainable Development Goals, investments need to become transformative and contribute to long-term system change. Currently, ESG investors often lack the tools and assessment practices to evaluate investments based on their transformative potential.This is where Deep Transitions Futures comes in.

In a one-year collaboration, the Global Investors Panel, a cohort of 18 public and private investors from all over the world, and the Deep Transitions research team, consisting of historians and sustainability transitions experts, have worked together to develop a new type of investment in transformation and system change. With the backing of James Anderson of investment firm Baillie Gifford, the panel and research team set out to combine Deep Transitions thinking with impact investing expert knowledge and develop an investment philosophy for Transformative Investments.

The collaboration consisted of ten sessions divided into three thematic blocks. The first block was primarily exploratory in nature, as the research team and the Global Investors Panel developed a mutual understanding of the objectives and desired outcomes of the project. The second block centred around the development of a set of future scenarios of the world in the year 2050, illustrating alternative ways that the food, energy and mobility systems could develop to place global equality and environmental sustainability front and centre. These future world scenarios were exposed to critical scrutiny from both an expert community and the general public in a stress testing and crowdsourcing campaign, inviting a wider audience to assess their desirability and feasibility from different contexts. The third and final block focused on consolidating previous findings and developing the investment philosophy.

Transformative Investments are long-term investments that trigger profound multi-dimensional change which ultimately leads to remaking the underlying principles of one or more socio-technical systems. In other words, Transformative Investments accelerate a Second Deep Transition, a fundamental shift towards sustainability. This Second Deep Transition is marked by a new set of underlying principles, including a sharing and circular economy, low-carbon production and consumption, building local value chains and resource efficiency.

In their working paper on The Promise Of Transformative Investment, Caetano Penna, Ed Steinmueller and Johan Schot identified a few key factors that hinder or prevent current investment practices from supporting this development, such as:

• A financial gap and lack of sufficient funding for achieving sustainability transformations.
• The overall rigidity of the financial regime in which current rules and norms that structure the action of agents precludes more radical approaches to transformation.
• Unfulfilled impact promises in which investing practices and strategies are failing to deliver sufficient transformational impact.
• Lack of an adequate transformative theory of change allowing for and encouraging long term investments.
• Investment tools are not aligned for transformative goals as metrics and indicators do not capture transformation, provide the basis for monitoring ongoing change processes or stimulate learning.

To address these hindering factors and contribute to creating more conducive circ*mstances, the Global Investors Panel and the Deep Transitions research team developed a number of alternative investment principles that address how to enable investments in transformations and contribute to system change. These investment principles were developed over the course of block three and form the backbone of the transformative investment philosophy.

During the in-person session in Utrecht, the panellists and research team did a final review of the investment principles to confirm their feasibility, comprehensiveness and transformative potential. As a result of the discussion, two additional investment principles were added.

Aligning Deep Transitions Theory with impact investment practices is not an easy task as aspects of Deep Transitions thinking tend to be contradictory to current financial success factors. Therefore, a key objective of session 3.3 was to address this space. To do so, the panel and research team were divided into smaller sub groups to experiment with implementing the transformative investment principles in practice.

Each group came up with a transformative investment experiment that aligned with the investment principles and was transformative in nature. The groups had to consider the vision, the returns, the required backing and conditions and the practical guidance needed to make the experiment happen. Suggested investment experiments included a green crypto coin focused on mobilising funding for small scale regenerative farms, ‘a year without oil’ reality tv series in which a test group of people would experience fossil fuel independence, a process for recovering and recycling chemicals and metals from common forms of e-waste (phones, laptops etc.), and fully regenerative factories which applied entirely circular principles. These experiments were presented and discussed in plenary, and the framework conditions and requirements for setting up such an experiment were reviewed in terms of their practicability. This exercise concluded the first day of the get-together.

Taking the implementation of the investment philosophy one step further and supporting the aim of establishing and scaling up transformative investment practices, the development of a Deep Transitions lab for experimenting with transformative investments was discussed. The lab would aim to provide a platform, guidance and tools for real-time experiments or pilots that contribute to gaining practical experiences, with the ultimate aim of building a ‘community of practice’. As a final part of session 3.3, the panel and research team exchanged ideas and thoughts about the potential business model of such a lab and what transformative investment experiments could look like. Further details of the lab structure and continuation are yet to be defined.

Concluding day two and the get-together in Utrecht, panellists were asked to indicate the extent to which they are, at that point in time, willing and capable to commit to the implementation of the investment principles moving forward. While many panellists indicated excitement and a strong commitment, some were a little more hesitant and somewhat doubtful still about the alignment and fit with how they currently carry out their work. This is one of the key remaining challenges: making the transformative investment philosophy and principles applicable and actionable for investment firms of all types and sizes.

To stay up to date about the launch of the investment philosophy, connect with Deep Transitions on LinkedIn and follow @DTransitions2 on Twitter.