Written by Caroline Ashley, Global Programmes Director, Forum for the Future and Emilie Goodall, Affiliate, Forum for the Future, this blog draws on conversations with actors in and beyond finance, and on this new Forum paper on the Role of Finance in systems change.

The conversation on sustainability is shifting in finance faster than ever before. But - as we argued in the first post in this series - the real prize is for finance to become an agent of system change - shifting the rules and behaviours that govern finance and that drive the real economy. In this blog, we shine a spotlight on three innovations that can provide a springboard for more profound change:

  1. system-level investing
  2. influencing the rules of the game
  3. impact investing

System-level investing

System-level investing is the intentional consideration by investors of the bigger-picture environmental, social or financial system context of their decisions. It looks at the health of the whole system, not the potential returns of one investment or transaction.

Rather than following the market (beta) or trying to beat the market (alpha), system-level investing is action to inform and influence a better betaRather than trying to beat the benchmark, it seeks to shift the benchmark of what counts as success. It is the recognition that acting to inform and influence the market as a whole can be central to, rather than in conflict with, enhancing long-term investment returns. It is linked to the concept of universal ownership, with large institutional investors seen in effect as ‘universal owners’ given their highly-diversified and long-term portfolios that are representative of global capital markets.

Or in the blunt words of Aviva Investors: ‘Over the long term, chasing alpha is pointless if you completely ignore systematic risks. Existential threats like climate change jeopardise the very foundations of society. If society starts breaking down, markets will too.’ 

This approach contrasts with and complements the conventional focus on a deal or a portfolio. System-level investing intentionally adopts a lens that sits above individual funds or in engagement with individual enterprises. This means acting at the ‘macro’ or ‘meso’ level rather than the ‘micro’ level as illustrated in Figure 1 below.

Figure 1: Different levels of financial institutions’ influence (Image credit: r3.0)

At the macro level this strategy could look like: 

  • Investors pressuring firms to mitigate behaviour that, although profitable for the individual company, damages the market overall. Consider Shareholder Commons’ Fox News resolution, in which shareholders were asked to vote in support of insisting Fox stop spreading disinformation about climate and vaccinations. 
  • Engaging with standard setters to inform international standards, in order to adopt these into their own investment processes. Consider the Coalition for an International Panel on Climate Finance which is calling for a new financial architecture to leverage public and private finance into the carbon transition. 

At the meso level this could look like:

  • Development finance institutions, Indian and international banks joining convenings and conversation in India with renewable energy developers, government officials, NGOs, community representatives. This is happening in India, where the Responsible Energy Initiative, (convened by Forum for the Future and other consortium members), is building a vision for how renewable energy can be scaled as a sector that enshrines responsibility including over the land rights of communities, and worker rights.
  • Venture capital funds, family offices and community development finance institutions (CDFI) in the US actively leaning in to regenerative agriculture, to unblock challenges to adoption and scale as in another collaborative project, Growing Our Future.

Influencing the rules of the game

Corporate political engagement is one of the most overlooked but potentially powerful ways that financial institutions can have impact. Direct and indirect engagement occur through industry associations and other third party lobby groups, and can overtly and often covertly (through the ‘revolving door’ between the public and private sector) influence the shape of the system. 

This power is generally deployed to protect the interests of financial institutions. Recently, the systemic and dramatic implications of climate change are triggering leading financial institutions to seek to influence the rules of the game in ways that align with the health of the system and planet.   They are proactively engaging with regulators and governments on how sustainability is built into the financial architecture. 

For example, before COP26, industry leaders called on governments to enact regulation compelling companies to disclose the implications of a net zero pathway on their business. More than 100 companies have called for mandatory human rights due diligence to be enshrined by the European Commission.  Most recently, attention is going to the overall financial architecture that has been in place since the post-war settlement, with industry players calling for a reworking of the Bretton Woods institutions to update their mandate to drive sustainability transitions.

The rules of the game tend to be the least visible but most influential part of the system. Finance actors turning their focus and power to influencing the rules of the game in relation to sustainability is a potential game-changer, though not without risks. There are questions as to the democratic mandate for this, although corporations, financial institutions and citizens (who are, after all, the ultimate asset owners) have a legitimate interest in protecting the overall economic system from the worst of climate change and social injustice.

To keep tabs on corporate lobbying, NGOs like InfluenceMap track companies’ and fund managers’ lobbying activities and score them in relation to positive/negative influence in meeting the Paris goals. Preventable Surprises’ Corporate Lobbying Alignment Project (CLAP) is in turn looking at investor engagement with high-emitting industries on the issue of corporate political capture. Leading institutions can engage with such initiatives, use their research to inform corporate engagement, and take an active role in discussion platforms such as those offered by CLAP.

Impact investing 

Impact investing is financing with the intent to generate positive, measurable social and environmental impact alongside a financial return. Although niche, at around $1 trillion of the estimated $150 trillion of global Assets Under Management, impact investing has been a testing ground for multiple innovations, in both developed and developing markets. 

Amidst ongoing attempts to define impact investing, two characteristics stand out, and both have significance with a system change lens:

  • Intentionality to select strongly performing or growing private companies that have a positive environmental or social impact, and to seek to increase that impact through provision of, for example, growth capital. Intent can be hard to discern, but this is one of the core criteria, for example in the GIIN definition of impact investment
  • As shareholders, engaging with companies on how they can improve their social or environmental performance, alongside and as integral to their commercial value.  Initially this was with private investees, but more recently, impact investing has stretched to active engagement with public (listed) companies. Engagement options include voting and/or active ongoing and targeted communication with company boards. 

These shifts are exciting from a systems change lens for three reasons: intention to combine change with commercial return reflects a shift in goals; engagement with publicly listed companies has potential to amplify impacts across the system even if impact-driven AUM remains small; and finally, the discipline that has emerged in impact methodologies and frameworks can be applied beyond its niche, and is beginning to help sharpen the vast and growing range of impact-driven strategies happening across the financial sector. 


Taken together these three innovations hint at what could be possible in shaping the future of the finance system and unlocking its power as an agent of positive systemic change. None of these innovations are guaranteed and they will inevitably continue to run up against the structures and incentives of the current system. In our next blog we ask what good leadership in this space looks like, when finance actors embrace the role of agent of change.

Ideas shared in this blog series draw on a new Forum paper on the role of finance as an agent of system change. 

School of Systems Change in Finance: This is an initiative of the School of Systems Change, Forum for the Future, and Aviva Investors, to develop system-change skills and perspectives amongst players within the finance sector.  It draws on deep systems change skills in the School, perspectives on systems change in finance captured in Forum’s paper (above), and reflected by Aviva in this edition of Aviva Investors Quarterly.