Systems-Level Investing: Strategy in an Unpredictable and Antagonistic Market

“By investing in the Sustainable Development Goals, we invest in the future, ensuring a world in which we strive for peace, stability, and prosperity that leaves no one behind.” 

— UN Secretary-General António Guterres 

At the nexus of the private sector, policy, and philanthropy sits impact investing. Though the concept of “doing well by doing good” has been put into action since the 18th century, environmentally and socially driven investing seems particularly important today as we face an unparalleled climate crisis and an increasingly global world. To address the broad and interconnected challenges of our modern world, impact investors recognize that single-point solutions are insufficient and instead turn to systems-level investing. Systemic investing “embraces systems transformation, deploys capital with a broader intent, and replaces a project-by-project mentality with new methodologies, structures, capabilities, and decision-making frameworks” (Sloan MIT). By articulating investment theses that account not just for returns but are engaged with systemic issues, investors have the opportunity to affect life on a global scale and drive profound positive change.  

What Constitutes a Systems-Level Issue? 

Issues which can be considered system-level risks are undiversifiable, including systemic market risks like inflation and recession and systematic risks like the collapse of planetary systems due to rising GHG emissions. They also have the potential for large-scale impact, both on systems and individual entities, often through interconnected pathways and feedback loops (PRI). Global conflict, biodiversity loss, and income inequality scarcely scratch the surface of the systemic issues requiring attention, while their breadth demonstrates many categories such risks span, including environmental, social, political, economic, and others. 

Systems level investing requires investors to align portfolios not only with their own appetite for risk and return but also the broader impacts of their investment on such issues. In doing so, investors have the opportunity to not only improve efficiency at the portfolio level but simultaneously reduce risk and increase rewards at the systems level. 

Why Invest on a Systems Level—The Penalty for Paralysis and Upside for Timely, Prudent Action 

Investing without a holistic, systems-level perspective both generates greater risk and leaves value on the table. Research demonstrates that consequences are both large and real: 

Systems Level Risk	Inaction	Action
LGBTQ+ Inclusion	North Macedonia and Serbia experienced losses of $64 million and $293 million USD respectively as a consequence of labor market discrimination and exclusion on the basis of gender and sexual orientation (World Bank)  A 2014 study modeled the calculating a $1.2 to 26 billion loss in USD to India’s national economy associated with employment discrimination and health disparities for LGBT people (TIPP)	Inclusion of LGBTI people can increase a country’s GDP by 1% or more (Baggett)  LGBTQIA+ inclusion and leadership is linked to positive performance and returns (TIPP)  Implementation of LGBT inclusive policies is correlated with higher stock returns and higher market (Shan et al.); Another group found that each standard deviation increase in a firm’s Corporate Equality Index score (measure of firm-level LGBT friendliness) was correlated with a 7% increase in stock market valuation and 0.5% increase in profitability (Fatmy et al.)
Gender Inequality	In 2024, the estimated global cost of failing to invest in women and gender equality was approximately $10 trillion USD annually (UN Women)  The global cost of violence against women is approximately $1.5 trillion annually (cost which includes lost productivity, healthcare, legal costs, and the social impact of violence) (UN Women)	According to the GIIN's 2024 Impact Investor Survey, 90% of gender investors met or exceeded their financial expectations, and 97% achieved their impact targets (GIN)  Companies with gender-balanced leadership see a 25% higher valuation on average compared to those with non-diverse teams (WE Coalition)  The World Bank estimates that increasing women's participation in the labor force in low-income countries could lift 60 million people out of poverty (WE Coalition)
Racial Inequality	In the US, racial inequity cost the U.S. an estimated $16 trillion in GDP between 2000 and 2020 (Citigroup)  Racial inequality is a catalyst for social unrest, which has destabilizing effects on the broader economy. Using IMF’s Social Unrest Index as an indicator, found large increases in the index triggered by “unrest events” are associated with a one percentage point decline in GDP in following quarters (Hadzi-Vaskov, et al.)	A 2016 study of 366 public companies across the U.S., Canada, the U.K., and Latin American found that companies in the top quartile of racial and ethnic diversity were 30% more likely to have returns above national industry medians, while those in the bottom quartile were less likely to achieve above average returns (McKinsey)  Breaking down barriers for all races generates access to incredible capital, both human and financial, and opens the doors to further economic growth and success (TIPP)
Climate Change	CPI estimates a $1,266 trillion USD cost of inaction, derived from modeling by the Network for Greening the Financial System  Even a temperature rise of 1.5°C is projected to reduce global working hours by 2.2% worldwide by 2030, costing the global economy $2.4 trillion USD (ILO)  In 2021, the World Bank projected up to $225 billion USD in GDP losses by 2030 due to lost ecosystem services, including pollination, timber provision, and marine stocks	Nature-based solutions—such as reforestation, sustainable land management, and wetland restoration—could generate $10 trillion annually by 2030 (WEF)  Global carbon markets represent huge opportunities, reaching $104 billion in 2023 with estimates suggesting 30% growth annually (World Bank Group)

For additional information on risks and opportunities for specific systems-level topics, see Responsible Alpha’s work on physical risk, transitional risk, and climate justice.  

By developing a systems-level investing approach, firms and individuals reduce the penalties of inaction, reap the benefits of huge opportunities, and most importantly reduce the compounding, otherwise inescapable risk of systems-level issues.  

Selecting Impactful Benchmarks 

While appreciating the risks and opportunities generated at the systems-level is the first and essential step in a shift to systems-level investing, portfolios and strategies are doomed to fall short of expectations if suitable, prudent, and forward-looking benchmarks are not employed to measure success and support decision making. As investors make transitions, TIPP outlines attributes of systems-level investing measurement that become increasingly apparent:  

1. “A holistic approach is needed; 

2. Difficult-to-value factors and qualitative judgments play an important role; and 

3. Application of normative considerations becomes part of the assessment process.” 

   
   

While more narrow, verifiable accounting exercises are still prudent in maintaining firm sustainability and assessing long-term growth potential, simultaneous principles-based assessment allows investors to adapt more effectively to increasingly complex social and environmental challenges. As managers progress, they must ask themselves: are our principles sufficiently clear, actionable, inspirational, and adaptable to be effective? Can we justify the systemic challenges on which we have chosen to focus? Have we chosen tools designed to create positive outcomes at the system level, and do these outcomes align with the needs of stakeholders? Finally, have we applied these tools at key leverage points so as to exercise positive influence?  (TIPP). For a more concrete framework of assessment, see TIPP’s Assessing System-Level Investments Guide for Asset Owners. 

Action Items 

1. (Re)Define Purpose: Identifying opportunities in systems-level investing scarcely happens by accident. Organizations and individuals must clearly articulate a purpose that connects investment strategy to systemic impact. Moreover, this requires reimagining fiduciary duty, shifting from a restricted focus on short-term financial return to an expanded understanding that considers long-term systemic resilience, intergenerational equity, and the well-being of all stakeholders—recognizing that sustainable financial performance depends on healthy environmental and social systems. 

2. Utilize Data and Tools: Effective systems-level investing requires leveraging a wide range of data, including both quantitative and qualitative sources. This means moving beyond traditional financial metrics to include ESG indicators, stakeholder feedback, systems mapping, scenario analysis, and climate transition tools such as those provided by NGFS, TCFD, and Responsible Alpha. 

3. Engage Key Stakeholders: Systems-level challenges demand inclusive governance and engagement. Investors must foster relationships with affected communities, regulators, supply chain actors, and civil society organizations to identify blind spots, mitigate unintended consequences, and co-create scalable solutions.