Financing system change

Most development finance is biased towards single-point interventions and project-based finance. Read insights on why this approach is putting the brakes on real change, and why funding that supports system change is needed.

In the Unstuck briefings, we create a curated collection of intelligence on a specific topic that we know is stuck, but also that with deeper observation and understanding can start the needed change. The briefings are always curated by people working in the field itself, who have realised that “business as usual” is no longer working.

Curator: Ida Uusikylä

Illustration: Matej Klíč

1. Why does the financing of systemic change need a reshuffle?

Systemic development struggles to be implemented and tested at scale as conventional financing mechanisms are not tailored for the paradigm. System and portfolio interventions are not single-point solutions, so their financing must be more complex, too. System change mainly needs high degrees of independent decision making in how to allocate resources.

Rather than allowing donors to guide and influence priorities at the portfolio level, it is up to the operators (and their stakeholders) who have a deep contextual knowledge to define what interventions deserve resources, and in what forms. Operators should be, de facto, system investment strategists and managers. 

2. A key initiative to follow

If you want to see how the financing of complex interventions might work, follow the activities of this key initiative.

The UNDP has been exploring system and portfolio-based financing models that would allow us to fully leverage the role of financial capital in addressing complex development challenges. For the past year, the UNDP together with other organisations has been uncovering different approaches to financing mission-driven sustainability transitions and portfolios, instead of individual projects. As a result, the UNDP created the concept of a multi-asset Systemic Fund, which has the mandate to develop a portfolio of interventions and flexibly deploy different types of financing depending on the nature of the option to be invested in – from short-term grants to impact- and return-driven equity or credit investments. In contrast to project-based financing, a Systemic Fund designs and invests into entire portfolios at once, with the goal of nurturing development from a systemic perspective. Read more about the Systemic Fund in UNDP Innovation’s article.

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3. Work on the ground

What's our experience with new ways of financing portfolios and system change? See the UNDP's latest interventions in different parts of the world.

Vietnam: Investing as a mechanism to unlock transformative change towards a circular economy

To turn the theory into practice, UNDP Vietnam conducted a feasibility study to explore how a system and portfolio approach to financing the circular economy transition would look, using an emerging investment logic called “transformation capital” conceived by Climate-KIC. The study offers a first set of ideas around the question of how an investment program seeking to bring about systemic change might be designed, using the waste management sector as an example.


5. Become familiar with system and portfolio practice

Understand the system level changes that won’t be possible in the immediate future, and why that’s so.

TEDx talk: Innovation as if the future mattered

Chief Executive Officer at EIT Climate-KIC, Kirsten Dunlop, and her introduction to the portfolio approach as the tool for system transformation, resilience and regeneration.


Webinar: Strategic Covid-19 recovery: A mission-oriented, multi-stakeholder approach to complex challenges

A panel discussion on emergent models and funding for system-level change, illustrated using the case of plastics in Indonesia.


5. Let's think together

The community and landscape on financing system change is constantly growing, as different organisations are exploring ways to move beyond the traditional ESG investing towards a more transformative system and portfolio-based investment model. Some of the questions that are being surfaced through these initiatives include:

  • What assets do we need to fund, and how do we identify these sensitive intervention points and “system-shifting ventures” if the goal is not just to generate a financial return and reduce emissions, but also to e.g. strengthen resilience?
  • How do we move from funding single-point solutions to funding the wider infrastructure and ecosystems that enable others to develop their own solutions collaboratively?
  • What is the underlying financial regulatory infrastructure that will make it possible to create a Systemic Fund, regardless of the particular issue it addresses and the form it takes?
  • How do you bring a human-centred approach and sensemaking to the practice of investing, and dynamically manage the Systemic Fund and govern the ecosystem of investors around it?
  • When the responsibility is shared between project executors, how will we set up an effective and reliable governance and accountability of projects? What tools and protocols do we need in place to be sure that all resources are spent well and with good purpose?

6. What to read/ watch/ listen
🤏🏻  Beginners💪🏻 Advanced
📰 Blog: Cassie Robinson

She describes herself as the one “not interested in maintaining the status quo.” Cassie Robinson has a rich experience of innovation in funding and working with various funding organisations. In her blog, she combines daily personal contexts with professional insights on funding innovations and strategies.
📰 Blog: Dark Matter Laboratories

Dark Matter Lab is a multidisciplinary design team developing new working methods for system change. We recommend reading the insights they share on their Medium blog – especially the series Bridging the Impact Investment Gap (part III and III) about meaningful ways of financing transformations, and the article about financing sustainability transitions.
📚 Book: Give people money

Could universal basic income (UBI) change the world and solve the poverty issue? Economics writer Anne Lowrey has travelled the world to find out how UBI could work in different conditions, as well as the biggest challenges and pitfalls of this policy. 
📜 Study: Finance for a regenerative world, Act III: Reimagining finance

If you would like a real deep dive into the topic of approaching the current crises and their financing, read this complex study by the unconventional economist John Fullerton. Besides an explanation of regenerative finance, you will have a chance to think about many provocative ideas and to understand that “we don’t live in an era of change; we live in a change in era.”
🎙️ Podcast: Freakonomics radio

In this podcast, Stephen J. Dubner, co-author of the Freakonomics books, introduces and discusses alarming topics and adds an economic insight. His interviews with Nobel laureates, intellectuals and entrepreneurs are great “snacks for the brain” for everyone, not only for those working in the finance sector. 
📰 Blog: Dominic Hofstetter

Dominic Hofstetter is part of TransCap Initiative, a collaborative space for developing, demonstrating and scaling system fund in cities, landscapes and coastal zones. In his blog, he writes about tackling climate change and new logic in systems thinking and finance practice. Read one of his recent articles to learn, for example, how a public equity component could make a strategic contribution to a system-based investment portfolio that intends to drive structural change in a real-economy system.  
📚 Book: Factfulness

The book of Swedish academic and world-renowned public speaker Hans Rosling, with the subtitle Ten Reasons We're Wrong About the World – and Why Things Are Better Than You Think, brings a bit of optimism into daily reality through challenging the common answers to the serious questions. 
📜 EIT Climate KIC's systemic investing for sustainability

Transformation Capital is a collective effort providing a holistic investment logic, guiding the deployment of financial capital for the purpose of catalysing sustainability transitions while generating commensurate financial returns. Read the study to learn more about the limitations of traditional funding in systemic change and the need of sustainable finance. 
🎙️ Podcast: Systems thinking for climate finance

Kirsten Dunlop, Chief Executive Officer of Climate-KIC, and current TransCap Initiative lead Dominic Hofstetter discuss why adopting a systems-thinking perspective is key to approaching the climate crisis meaningfully. 
📜 Report: Embracing complexity

Catalyst 2030 is a shared experience involving several organisations, such as McKinsey, Echoing Green, the Skoll Foundation and others. The report is targeted to people from the funding community who want to evolve their current model to invest in system and portfolio approaches.
🔍 Framework: Our impact finance R&D program by Griffith University Yunus Centre

An innovation centre from Griffith University introduces their “sensemaking framework, that can enable diverse and distributed stakeholders to align their efforts around complex goals and experiment with new approaches.” 

7. For deeper learning

The following is a list of webinars, lectures and talks for everyone who is dealing with the topic of financing transformation and related issues on a daily basis.

💻 Webinar: Investing in system innovation

In this Learning Festival session on investing in system innovation, Chrisann Jarrett (co-CEO of We Belong), Alex Sutton (Senior Grants Manager at the Paul Hamlyn Foundation) and Giulio Quaggiotto (Head of Strategic Innovation at UNDP) provided us with a thought-provoking snapshot of the funding side of the equation to systems innovation. 


💻 Webinar: Applying an (eco)system approach to funding – experiences from foundations and philanthropies 

Traditional funding models in international development (and beyond) are based on siloed interventions and a projectised logic, rigid log-frames and short-term frameworks that are not a good fit to foster the societal transformations required to meet the Sustainable Development Goals. Erin Sines (MacArthur Foundation), Cassie Robinson (National Lottery Community Fund) and Gautam John (Nilekani Philanthropies) shared their experiences of rethinking funding and financial instruments to better align with and support system transformation.


💻 Webinar: Ecosystems for financing transformation

Experienced innovators in the field of transformation finance discuss the trickiest questions in the field, including how to change finance and investment systems from the inside, and how to move new resources onto the most recent emerging issues. 


💻 Webinar: City funds to address city challenges 

Listen to an innovative approach to funding current city challenges, provided by a non-profit organisation, Bankers without Boundaries, which works with governments, institutions, cities and foundations to provide advisory and research services to mobilise financial capital.