System-level investors

System-level investors believe that long-term profitability depends on healthy financial, social, and environmental systems. They use both conventional and advanced investment techniques to manage systemic risks and generate value for these systems.

Conventional investment techniques used by system-level investors

• Statements of Investment Beliefs (SIBs): System-level investors explicitly commit to contributing to the health of social, environmental, and financial systems in their SIBs.
• Security selection and portfolio construction: These investors incorporate environmental, social, and governance (ESG) considerations and set standards for social and environmental conduct across industries.
• Engagement: They engage with entire industries on systemic risks to influence underlying systems.
• Manager due diligence: They assess managers’ competencies in managing systemic risks.

Advanced techniques used by system-level investors

• Field building
  • Self-organisation: Creating collaborative organisational structures to address system-related challenges.
  • Interconnectedness: Producing and sharing information about systems.
  • Polity: Engaging in public policy debates to create resilient systems.
• Investment Enhancement
  • Standards setting: Establishing standards to discourage investments in entities violating accepted norms.
  • Solutions: Investing in solutions to social and environmental challenges.
  • Diversity of approach: Using varied investment tools to address complex systemic concerns.
• Opportunity generation
  • Additionality: Pursuing investments that provide access to finance for the underserved.
  • Evaluations: Valuing aspects of systems generating long-term wealth.
  • Locality: Strengthening systems within specific geographic areas.
  • Utility: Aligning investments with societal functions.

Investors leading the way

TIIP selected five investors for case studies: California State Teachers Retirement System (CalSTRS), Domini Impact Investments, Saint Paul & Minnesota Foundation (SPMF), University Pension Plan (UPP), and Wespath Benefits and Investments. These investors are recognised for their commitment to system-level investing.

Key takeaways from investor case studies

• Statements of Investment Beliefs (SIBs): All studied investors use SIBs to express their commitment to system-level investing.
• Fiduciary duty and systemic risk management: Systemic risk management aligns with fiduciary duty, considering ESG factors as material to long-term returns.
• Focus on climate change: Climate change is a primary systemic challenge for most studied investors, with comprehensive action plans in place.
• Field building strategies: Investors adopt field building strategies to collectively engage with peers and influence broader change.
•  Impact Measurement challenges: Measuring the impacts of system-level investing strategies remains difficult. Investors focus on progress against commitments and standards.
• Internal champions: Successful adoption of system-level investing often requires a dedicated advocate within the organisation.

These case studies illustrate the diversity of approaches in system-level investing and highlight the importance of integrating systemic risk management into investment practices.

Conclusion

Although system-level strategies are new, early adopters are clearly integrating these techniques. System-level investors adapt conventional investment techniques to support their focus, evident in their SIBs and policy documents. They also employ advanced techniques, collaborating with like-minded firms to enhance cross-industry engagement and influence. The specific techniques used vary by firm size, capabilities, and thematic focus, with internal system-level champions playing a crucial role in promoting these strategies.