System Change Investing Summary

Frank Dixon
System Change Investing
fdixon@SystemChangeInvesting.com

The following big-picture logic sequence summarizes the need for System Change Investing (SCI) and the large opportunity it creates for investors, business, and society.

Root Cause. Reductionist economic and political systems compel companies to degrade the environment and society by not holding them fully responsible for harm. This makes it impossible to fully stop harm and remain in business. These flawed systems are the primary root cause of climate change and nearly all other major challenges. Holding companies fully responsible (HFR) is the foundational system change solution. This makes it more profitable to cause no harm, thus eliminating the main root cause of severe threats to business and society.

Imminent Change. Destructive systems inevitably will change through voluntary or involuntary means. Rapidly growing environmental, social, economic, and political problems strongly indicate that systems are already changing. If we do not voluntarily improve them soon, they will involuntarily change in ways that greatly disrupt business and society. HFR system change will produce sustainable profits versus the losses and business failures of involuntary system collapse.

Power to Change. Many governments are strongly influenced by vested interests. The general public is frequently divided. As a result, these segments of society are less able to drive short-term systemic reform. The corporate and financial sectors have the greatest power to drive timely system change.

System Change Leverage. The corporate and financial sectors are largely controlled by investors. This makes investing the most powerful system change leverage point.

Current Approaches. Current system change-focused investment strategies mainly involve investing in environmental and social solutions and shifting investments to more sustainable companies and sectors. These investments are essential for sustainable society. But they cannot achieve it on their own because they do not directly drive system change. They must be supplemented by investments that do. Green investing won’t produce a green economy under systems that demand brown. Also, current approaches largely apply to the relatively small sustainable investment portion of the capital markets.

System Change Investing. SCI involves rating companies on system change performance and shifting investments to system change leaders. This directly drives HFR and other types of systemic reform by rewarding companies that promote it and penalizing those that block it. All companies can be rated on system change performance. This enables nearly all of the capital markets to drive system change. Broad market application and direct root cause focus make SCI the most powerful type of systemic investing. With SCI, brown sector investments can provide greater sustainability benefits than traditional green ones because they directly drive system change.

Ease of Implementation. SCI is also the easiest form of system change-focused investing to implement because it is based on responsible investment strategies that many asset owners and managers have been using for years. In its simplest form, SCI ratings are produced by adding system change metrics to ESG models. Then these enhanced ratings are used in the same way as current ratings.

Complexity versus Simplicity. HFR and other types of systemic change are highly complex. But SCI is relatively easy. To illustrate, the operational goal of ESG was not to achieve sustainable society. It was to measure a company’s contribution to it. In the same way, the operational goal of SCI is not system change. That will be achieved by business and society collectively. The focus is simply to measure a company’s contribution to system change. This is a vastly simpler and more achievable goal than system change overall.

Full Risk Mitigation. Climate change, biodiversity loss, and essentially all other environmental and social problems are symptoms of flawed systems. These systems are the true systemic risks. By effectively addressing them, SCI enables full investment risk mitigation.

Investment Returns. SCI increases short-term return potential by shifting investments to visionary, better-managed companies and by assessing systemic risks and opportunities that are not adequately addressed by financial and ESG analysis. It protects longer-term returns by providing a powerful strategy for averting systemic collapse.

Attracting New Investment/Reputation. By effectively addressing root causes, SCI provides the highest possible sustainability benefits. This attracts new investment and enhances asset manager reputations.

Moving Beyond Debate into Action. The most advanced SCI models use the whole-system, natural law-based Global System Change (GSC) framework. The laws of nature have controlled all life on Earth for 3.8 billion years. They are the objective reality standard for guiding the evolution of human systems and society. This objective standard enables humanity to move beyond ideological debate, bias, and misinformation into essential system change action.

Driving System Change Throughout Society. The three-part GSC framework uses the laws of nature to define sustainable society at a high level, identify the systemic changes needed to achieve it, and clarify the actions required in all major areas to bring about these changes. GSC-based SCI models rate companies on their efforts to promote systemic reform in government, finance, education, media, and other areas. This enables investors to drive essential systemic changes throughout society.

Using Current Systems to Change Systems. SCI plays by the rules of current systems. Responsible investing became mainstream when it became return-enhancing. SCI does the same with system change. By reducing investment risk and increasing return potential, SCI provides the strongest possible incentive under current systems for engaging the financial and corporate sectors in system change.

Long-term Well-being. Rapidly growing turmoil and problems strongly indicate that involuntary system change has begun. SCI provides a powerful strategy for driving voluntary system change. It greatly increases humanity’s ability to prevent involuntary collapse, halt environmental and social degradation, protect investors and business, and ensure the long-term well-being of humanity and all life on Earth.

More detailed information about SCI, GSC, and the ideas shown above is available at www.SystemChangeInvesting.com and www.GlobalSystemChange.com

For information about SCI services, contact fdixon@SystemChangeInvesting.com

Frank Dixon is a leader and pioneer of system change and return-enhancing responsible investing. As the head of research for the largest, #1-rated ESG research firm (Innovest, now MSCI), he developed and refined the original return-enhancing ESG models that now underpin the management of trillions of dollars of assets. Overseeing the sustainability analysis of thousands of companies showed that flawed systems make it impossible for companies to stop harming the environment and society. In 2003, recognizing that system change is the key to sustainability, he created the concept of using investing to drive system change and built the first models for implementing it. He has been evolving SCI models and developing system change solutions ever since. He launched the Global System Change and System Change Investing companies and wrote the Global System Change books, which provide systemic solutions for all major areas of society. His SCI and Total Corporate Responsibility (TCR^®) approaches provide the most advanced responsible investing and corporate sustainability strategies. He advises leading organizations, including Investors for Purpose, Capgemini, Walmart, and the US EPA, and has presented at many conferences and universities, including Harvard, Yale, Stanford, MIT, and Cambridge. He holds an MBA from the Harvard Business School.