A pilot study on systems thinking in asset management

This study was exploratory in nature, and aimed to better understand whether and how systems analysis could add value to the incorporation of SDG analysis in capital investment to support positive impacts on sustainability. The researchers conducted this pilot study for the Swedish Foundation for Strategic Environmental Research, Mistra, from January to December 2022, surveying existing methodologies and tools designed to incorporate the SDGs and/or broad sustainability considerations into asset management and identifying approaches that adopted a systems perspective, either directly referencing the SDGs or strongly related to the scope of the SDGs.

The authors identified three examples of relevant tools and discussed the potential strengths and weaknesses of these tools. Independent of the scoping exercise on existing tools and methodologies, they also interviewed several practitioners in the financial sector.

An overarching conclusion is that systems thinking is a challenge for the finance sector. Company-specific information is often necessary, and very complex value chains and life cycles need to be covered.

Still, a systems perspective can help to approach the complexity of sustainability, and this pilot study identified six dimensions of systems thinking that would be useful for investment and asset management:

1. Are multiple dimensions of the sustainability agenda considered?
2. Are positive and negative impacts systematically considered?
3. Are more complex effects including indirect effects considered?
4. Are direct and indirect impacts producing co-benefits and trade-offs within the system?
5. Is there a long-term perspective?
6. Are large and small impacts distinguished?

These are first steps in operationalizing systems thinking for sustainable finance and can be used as a simple checklist. However, they need to be further concretized in relation to the specific economic activities and companies under assessment, to be useful in asset management.

The authors recommend that the first critical steps that can be made now are to address a broader range of relevant sustainability aspects for specific companies and sectors; to systematically consider both positive and negative impacts; and to adopt a value chain approach to assessing impacts. Transparent company reporting of full value chains and hotspots is crucial to enable prioritization of the most consequential sustainability issues.