For a healthier society, we need more system-level investing

Investors who are serious about the long-term stability of our society and planet should do more to strengthen the social and environmental systems they rely on themselves – not least because system-level investing can generate competitive returns. Kieron Boyle of Guy's & St Thomas' Foundation (pictured, left) and William Burckart of The Investment Integration Project (right) on how catalytic capital, encouraging others to follow suit and even starting small can make a big impact. 

Kieron Boyle of Guy's & St Thomas' Foundation and William Burckart of The Investment Integration ProjectIf healthy food was 20% cheaper, would you buy more of it?

The creators of SMASH – Save Money and Stay Healthy – app  think the answer to that question will be ‘yes’ for the UK’s 13-to-24 year olds. The app, launched this year, will offer them a 20% discount on healthy food choices at food-to-go retailers, in the hopes of reducing childhood obesity and improving health, particularly in poorer areas.

Smash appSMASH’s development was supported with a £1m investment from Impact on Urban Health. This is an organisation that’s part of the Guy’s & St Thomas’ Foundation, an independent charitable foundation working on health issues for over 500 years. One of us (Kieron) leads that foundation, and its investment in SMASH comes from a recognition that the Foundation needed a broader, more comprehensive approach to solving health problems.

Often, poor health is seen as the failure of the individual, not of society. Yet it is our societal structures and systems that create these outcomes: what some experts call ‘predatory’ marketing has put unhealthy food and sugary drinks in the spotlight, contributing to obesity rates increasing 10-fold in the last few decades.

Often poor health is seen as the failure of the individual. Yet it is our societal structures and systems that create these outcomes

The costs are borne by society as well. In the UK, two in three adults and one in three children are now obese or overweight, costing the wider economy £54bn in reduced productivity and economic growth. This systemic problem requires a system-level solution.

 

Full endowment, full impact

Guy’s & St Thomas’ Foundation has a nearly £1bn endowment, and over the last several years, the Foundation has been testing if funds from the entire endowment, not just the proceeds, could be used for its mission of improving health and well-being. This movement away from solely relying on grantmaking for charitable goals was a recognition that all investments have an impact in the world, positive or negative. So why not use the full endowment for a ‘full impact’ strategy?

This shift at the Foundation is reflective of a global movement of foundations, investors, and others taking a comprehensive look at their investment portfolios to solve systemic issues and better manage systemic risks. Modern challenges such as the Covid-19 pandemic, climate change, income inequality, and destabilisation of democratic norms have increasingly shown that our systems are interconnected, and that when one system (like public health) fails, the remaining systems will be disrupted (like months-long lockdowns that cripple economies). Investors can and should do more to support and strengthen the social and environmental systems they rely on for their returns.

 

 

Serious about long-term stability

One of us (William) has been supporting investors and foundations to make a shift towards this practice of ‘system-level investing’. In the new book, 21st Century Investing: Redirecting Financial Strategies to Drive Systems Change, he and his co-author Steve Lydenberg detail lessons from their work over the past six years in building and supporting a field of system-level investors to implement strategies that manage systemic risks like the threat of climate change or the potential for a global pandemic. They have seen how investors who are serious about the long-term stability of our society and planet can generate competitive or otherwise acceptable returns while creating a strong foundation for long-term performance.

Investors like the US-based UAW Retirement Medical Benefits Trust continue to push for more comprehensive standards and data disclosure around income inequality. The Trust houses the Human Capital Management Coalition (HCMC). Supported by 32 institutional investors with $6trn in assets under management, HCMC petitioned the US Securities and Exchange Commission in 2017 to require company disclosure of human capital management policies and practices. HCMC asserted such disclosures were “fundamental to human capital analysis,” and included workforce culture and empowerment, workforce health and safety, human rights, and workforce compensation and incentives in their disclosure requirements.

The CFA Insitute advises investors to integrate system-level thinking into their portfolios

The Australian Constructions and Buildings Union Superannuation Fund (Cbus) offers another example. Cbus has a responsible investment policy that states its commitment not only to integrate environmental, social, and governance (ESG) considerations into security selection and portfolio construction, but also to use its “strategic activities” to influence “the shift towards a sustainable financial system.” Its partnership with the New South Wales government promotes investments in low-income and affordable housing, leading to an initial $10m investment. Cbus believes that further collaborations with other state governments “will provide a pathway for greater institutional investment into much needed social and affordable housing, not only providing capital for the building of housing stock, but creating and maintaining jobs in building construction”.

The rest of the investment community is catching on as well. In the Financial Reporting Council’s UK Stewardship Code 2020, for example, Principle 4 directs asset owners and managers to “identify and respond to market-wide and systemic risks to promote a well-functioning financial system”. The CFA Institute, the global association of investment professionals, has also echoed this sentiment. In December 2020 it released “The Future of Sustainability in Investment Management”. The report advises investors to integrate system-level thinking into their portfolios, saying: “Systems theory is more than just an extra discipline to be studied; it is as much a way of thinking and communicating that needs a cultural grounding. The key principle is that there are multiple interconnected factors that drive the investment ecosystem that need to be recognized.”

 

Growing the field

Guy’s & St Thomas’ Foundation decided to take this approach to maximise the scale at which it could operate. It has a permanent endowment, meaning most of its £1bn endowment is in investments, and the proceeds are used for grantmaking (around £30m annually). Bringing that full £1bn into play, and setting dual financial and health objectives, has allowed for an expanded focus on impact – investing in both established funds to increase the depth of their impact, but also ‘catalytic’ investments that help newer funds or models get off the ground.

One catalytic investment is SMASH. Another is the Good Food Fund, along with Big Society Capital and Mission Ventures, which supports an accelerator of small- and medium-sized businesses tackling childhood obesity. A third is Eka Ventures, a Series A venture fund investing into sustainable consumer technology companies with a focus on healthcare, transport and food.

Investing for systems change doesn’t have to mean engaging the whole system at once – it can also mean spotting where opportunities converge

The Foundation has also contributed to what William and his team call ‘field building’ efforts, encouraging other investors and companies to take a system-level approach and set appropriate standards. The Foundation is working with ShareAction to develop the Long-term Investors for People’s Health programme to encourage investors to consider health, and the social factors that drive it, in their investment decision making. This programme will take actions similar to the recent shareholder resolution aimed at Tesco, UK’s largest groceries retailer, to encourage the company to sell more healthy food.

The goal is not for any one of these investments or efforts to be the solution to childhood obesity, but that the collective results can point to ways to scale and solve the problem. For example, if the SMASH app is successful, the solution could be scaled through a similar 20% VAT reduction in healthy foods.

It is too soon to know the long-term shifts that will come from these investments, but the early evidence is encouraging. We’ve learnt that investing for systems change doesn’t have to mean engaging the whole system at once. That can feel an unachievably high bar. Rather, it can also mean spotting where opportunities converge – and getting going. We encourage you to look at your own investment practices and determine how and where a system-level approach could help you achieve long-term returns and strengthen the financial, social and environmental systems we all rely upon.

  • Kieron Boyle is CEO of Guy's & St Thomas' Foundation. William Burckart is president of The Investment Integration Project.

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