What is systemic investing, and why are impact investors taking notice?

Systemic investing is an emerging approach to capital deployment that seeks to transform systems to produce the best long-term outcomes for people and the planet.

The discipline is gaining attention among sustainability investors as it’s becoming evident that conventional approaches are limited in their ability to effectively address pressing ecological and social issues and the economic risks and opportunities they present.

The strategy is described in depth in the latest issue of “Investor’s Guide to Systemic Investing,” published by the Center for Sustainable Finance and Private Wealth and co-authored by MIT Sloan Sustainability Initiative director Jason Jay, who is also an instructor in the center’s Investing for Systems Change program taking place May 21 – 23 in Zurich.

In this excerpt, Jay and co-authors Rory Tews, Kirsten Andersen, and Falko Paetzold describe the differences between impact and systemic investing and explain how to gain value through systemic investing.

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Systemic investing is an emerging approach to capital deployment at the nexus of impact investing, philanthropy, and sustainable finance.

Current approaches do not usually take a systemic perspective, focusing instead on individual point solutions (e.g., replacing internal combustion engines with electric motors) and ignoring the interconnected nature underpinning these challenges (e.g., outdated personal transportation systems). The resulting portfolios often lack synergy or, worse, contain investments that counteract each other.

The growing community engaged in systemic investing believes that we must face humanity’s most pressing challenges in a collaborative and holistic manner. This mindset recognizes that social and ecological issues cannot be addressed in isolation, due to the deeply interconnected nature of the systems that generate them. Systemic investing seeks to better understand the complexity of these systems and to create value through portfolios of synergistic investments, in coordination with other investors and stakeholders.

Systems thinking is a set of concepts that now permeates much of modern culture. The use of terminology such as “tipping points,” “feedback loops,” and “mental models” often tends to be implicit and intuitively understood. In the investment world, systemic investors are now introducing these concepts intentionally and explicitly. We refer to this explicit introduction and use of systems thinking as a systems turn, with systemic investing being one manifestation that is reshaping capital deployment.

We interpret systemic investing as primarily evolving through the introduction of systems thinking into impact investing. Both seek to advance ecological sustainability and human well-being, though targeting concrete improvements directly is not what defines systemic investing. Investing to directly generate eco-social outcomes, or “point-solution investing,” is the purview of impact investing. Systemic investing shifts the focal point away from direct outcome targeting and places it on catalyzing changes in the systems generating those outcomes.

[The table above] introduces a set of contrasts to illustrate this difference. Impact investing uses single asset classes to support point solutions to specific problems. Systemic investing uses multiple asset classes simultaneously to recalibrate the underlying system generating the problem. The shift in focus from addressing individual issues to meeting the needs of the system leads to very different solutions. This, in turn, leads to changes in the resources used, the understanding of portfolio construction, and the nature of stakeholder knowledge required.

Adding value through systemic investing

In an increasingly uncertain world, systemic investing offers a route to sustainably adding financial and eco-social value. This value is derived from embracing and utilizing the complexity of systems. Two mechanisms that can provide systemic investors with an edge are leverage points and synergistic investments.

In the context of systemic investing, leverage refers to using one’s understanding of a system to identify the most effective points to intervene. “Leverage points” are thus where a targeted investment can catalyze the greatest change in the calibration of the system. This is also referred to as having a “trim tab” effect, where a small investment of resources can create outsized effects.

Having a comprehensive (and accurate) understanding of a system enables highly targeted capital deployment, leading to greater value. The capacity to identify leverage points in a system opens up the possibility of investing at multiple points in a synergistic manner. For example, producing an appealing electric car will not move the needle without simultaneous deployment of charging stations.

Systemic investing therefore deploys capital to ensembles of solutions and their enabling conditions to explicitly generate these synergies. This requires investing across asset classes — including philanthropy and other forms of capital. Identifying and realizing synergies across multi-asset portfolios is therefore a key characteristic of systemic investing. The use of such “strategic portfolios” to create value through synergies is a different way to think about diversification, moving beyond its use to manage risk in traditional portfolio construction.

Excerpted from “Investor’s Guide to Systemic Investing,” Issue 3, by Rory Tews, Jason Jay, Kirsten Andersen, and Falko Paetzold. Reprinted with permission from the Center for Sustainable Finance and Private Wealth. Copyright 2025.