‘System positive’. The latest term I came a cross in the finance world, and which intends to identify businesses that are particularly well set up to survive the tribulations to be extected in the decades to come.
In the definition of one investment company who uses that concept to scrutinise all their investments, as well as to focus their engagements, is:
‘System positive’ is [our] shorthand for companies that [we believe] will thrive in the transition to sustainability. Such companies are also helping to enable and drive the changes we need to see in economic and social systems.
Generation Investment Management
Immediately the cynic in me asks: Another addition to the sustainability bullshit bingo? How meaningful or empty is the term? Where does it overlap, or not, with terms such as ‘future fit’ (precisely!), ‘regenerative’ … to just name a few? Transition only? Help drive the changes – but still talking of growth? And lastly: do we really need another term, another qualifier to put companies in ‘ok’, ‘better’, ‘best’ categories, all of which still fall short of the commitment and action really needed by economic players of all sizes and shapes?
Yes indeed, I am really critical about the need for yet another term.
And I am even more critical about the fact that it comes from an investment company. Who – how else could it be – still throws around terms such as ‘high growth portfolio’ as if they did not know, and no one would notice, the paradox between ‘sustainability’ and ‘growth’!
Albeit: I think the intent behind it may be valuable. For one, it acknowledges a system’s view on the challenges ahead, and it also implies a view onto industrial eco-systems. It further acknowledges that only ‘adapted’ players will remain in the game. And lastly: as a departure point it does admit – if not explicitly – that there may be a point of no return. A point beyond which humanity, and therefore business, would seize to exists.
5 very good questions
The questions that are used to scrutinise companies however, are excellent. Which is why I quote them here in their full beauty:
| Question | Background |
| What are the systemic shifts required to make the sector truly sustainable? | Most sectors are in some kind of transition, but the nature and speed of this transition varies. It is important to map out this broader context before seeking to assess the company’s specific situation. This also helps avoid being trapped in the narratives that often surround individual companies. To do so, a broad range of published literature, particularly major scientific assessments such as those by the Intergovernmental Panel on Climate Change, are used. |
| Does the company stand to benefit from a sustainable transition? | This question gets at the basic opportunity (or cost) that the company would face under a systemic shift to sustainability. It also helps identify whether the company sees its interests in promoting an accelerated shift or seeking to hold it back. A promising company is one that gains more from an accelerated transition than from a business as usual pathway. Disclosure in line with the Task Force on Climate-related Financial Disclosure provides useful information on some of these risks, but is less clear on the opportunities. |
| Does the business and management team have a long-term orientation? | Does the company have the capability to lead and drive change at the system level? This includes innovation in the broad sense: technical capacity and know how, as well as the wider ability to develop and deploy new products and services, or move with agility to new business models. Considerations: whether remuneration and progression in the firm are connected to progress on sustainability; and whether companies are testing their corporate strategy against a wide range of possible futures. |
| Does the company have levers available to catalyse a system-level change? | All companies can have some impact on their stakeholders. But, some have more powerful levers than others, or to put it another way, are more systemically important. Asking this question helps put the companies’ ability to drive change in perspective. If the levers are weak, it bears the question for an investor if this is the most effective place to allocate capital. This question also helps reveal whether management are approaching this passively or looking for opportunities to act. |
| Is the company mobilising effective coalitions for systems change? | Partnerships are often needed to catalyse the change to a new system, and ensure that there is a fair transition. Consideration: whether companies are playing an active role within existing coalitions of the willing; for instance, they may have joined initiatives on regenerative agriculture, committed to ensuring a ‘net-gain’ for biodiversity and set a net-zero emissions goal. Do companies use their influence and capacity to create new partnerships in communities, sectors and supply chains. Clearly, their lobbying needs to be aligned with policies designed to support the transition. |
… yet they’re falling short of 1
Remember the Growth Elephant?
The above approach is probably one of the more stringent views from an investor perspective on which companies are worth their while (and money).
And yet … once in the skin of an investor, always in the skin of an investor, as the following quote shows:
Our Growth Equity strategy invests principally in private companies. For over 15 years, we have tracked many innovators and disruptors in agriculture and food systems.
Generation Investment Management (emphasis added)
What the quote shows is that many investors, but also eco-system builders (such as e.g. the B Movement) promote growth. More specifically: growth of their own way of being, at the cost of growth of others.
Yet: At no point is it ever acknowledged that indeed what they are promoting is replacement growth: i.e. the intent to exchange ‘bad players’ through ‘better’ or ‘good’ players. Hence growing the amount of investment in, or the number of businesses, considered ‘good players’.
At no point is there an explicit recognition that also this approach invariably will hit system boundaries.
At no point is it acknowledged that so far their efforts have expanded the system as a whole (‘grown the pie’) instead of actually and truly replacing ‘bad’ through ‘better’.
The one question missing therefore would be something along the lines of the following two:
- Does the company have a business model that thrives in a ‘replacement economy’ (aka: steady state economy)? Or
- Does the company have a business model that not just keeps itself within the Doughnut Boundaries, but indeed thrives within and possibly thanks to them?
Learn More:
- Generation Investments: Insights 03 – System Positive
- Principles for Responsible Investment (PRI): Transition Pathways Tool
