System-level Investing
Takes Off
June 17, 2024
William Burckart, CEO, TIIPThe Big 4 Ideas:#1: Systems are important…really important#2: There is now a baseline of theory and practice for system-levelinvesting#3: Investors are demonstrating how to adapt policies, programs,
and practices to the system level and adopt new techniques#4: A global community of practice is taking shape

“Perhaps the biggest theoretical failing of modern portfolio theory is the assumption that the nondiversifiable risk of an investor’s investments—the effects of market crises, global warming, politicalrisk and other systemic issues—affect an investor’s investments, but is unaffected by those sameinvestments…The irony is that more than 90% of the variation of return an investor will receive isexplained by the return from the risk profile of the universe of securities they are invested in and notby the stock selection undertaken by the asset manager. So you would think that affecting the overallrisk of the market would be where the asset management industry would focus so as to have thebiggest risk mitigation impact.”- James Hawley and Jon Lukomnik, “The Purpose of Asset Management” (Pension Insurance Corporation, 2017)

“CalSTRS has made a commitment to integrate system-level investing strategies into ourportfolio…Creating long-term returns for the assets of our members requires us to tackle marketspanning challenges like climate change to support long-term value and a secure pension for
California’s public educators and their beneficiaries.” [Emphasis added by TIIP]- Quote from Harry Keiley, Board Chair, Chair of the Teachers’ Retirement Board, which administers the California StateTeachers’ Retirement System (CalSTRS) in Forbes“Wespath Benefits and Investments will continue to assess and hold its asset managers accountable forrepresenting our interests in managing systemic risks like climate change. I know many other
responsible asset owners will do the same, and I’m thankful to initiatives like Climate Action 100+,Ceres, Inc., Principles for Responsible Investment and Freedom To Invest and others for making spacefor likeminded investors to collaborate on these issues.” [Emphasis added by TIIP]– Statement by Dave Zellner, Chief Investment Officer, Wespath Benefits and Investments and Wespath InstitutionalInvestments

There is truth to (and need for) it, though: Systems are the foundation of oursociety and hence of any successful investment

Source: The Imperative for Impact Management, Impact Management Platform.

But the “Invisible
Hand” ofconventional
markets is being
overwhelmed it’s“UnmentionableFoot”)…

See “The Trap of Externality-Denying Capitalism” by Duncan Austin, for Thinking Ahead Institute…this is also a
problem forsustainable financeand impact
investing: both arebuilt on a paradigmof externality
denying-capitalism.

See “The Trap of Externality-Denying Capitalism” by Duncan Austin, for Thinking Ahead InstituteThe Big 4 Ideas:#1: Systems are important…really important#2: There is now a baseline of theory and practice for systemlevel investing#3: Investors are demonstrating how to adapt policies, programs,
and practices to the system level and adopt new techniques#4: A global community of practice is taking shapeThe Investment Integration Project (TIIP)
Established in 2015, TIIP has helped
investors make the connection andintegrate portfolios and systems, hence
its (admittedly awkward sounding) name:
The Investment Integration Project*TIIP provides consulting services, appliedresearch, and a subscription-based SaaS
platform that supports investors’ pursuit ofsystem-level investing, an advanced
approach to sustainable and impact
investing that focuses on managing
systemic risks and investing in solutions
to systemic problems.
Learn more at http://www.tiiproject.com*Emphasis added by me for dramatic effectAnd our introduction of an equally awkward sounding term: system-level investing*Modern Portfolio
Theory• Risk/opportunity
target: Idiosyncraticrisk• Technique:
Diversification• Playing field:
Capital markets• Goal: Least meanvariance portfolio*And the limits of my design skills, as featured in TIIP’s
original logo from 2015

System-level investing• Risk/opportunity
target: Systematicrisk• Technique: Mitigate
risks toenvironmental,social and financial
systems• Playing field: Realeconomy/society• Goal: Improved
overall market
risk/return profiles

Elevating practices to manage systemic risks and system-level
opportunities…

Establishing thetheory and practiceof system-level
investing…**As Jon likes to say, these
are not modest books. We
intend to entirely redefine
what investing is, how it’sdone, and its true north.

Partnering with the leading academic hub on systemlevel investing…**Select faculty andresearchers include
Caroline Flammer(founder of SIRI), David
Wood, Sara Minard, Jon
Lukomnik and more(including recurring guest
lecturers Monique Aiken,
Maguette Diop, Mirtha
Kastrapeli, Steve
Lydenberg, Jessica
Matthews, George
Suttles, and more)

The Big 4 Ideas:#1: Systems are important…really important#2: There is now a baseline of theory and practice for system-level
investing#3: Investors are demonstrating how to adapt policies,
programs, and practices to the system level and adopt newtechniques#4: A global community of practice is taking shape

Movingbeyond theportfolio-level

Complementary actions for progressTools and techniques for system-level investingPut in practice: Field building
Field building techniques
Building organizations that can pool
resources and act collectively,
develop a shared knowledge baseregarding systems’ complexities, andwork to assure alignment of investors’
goals with those of government andother influencers of public policy andvice versa.

Field building: A closer lookPut in practice: Investment enhancement

Investment enhancement
techniques
Leveraging firm resources across theinvestment process—investment
policy and belief statements,
investment strategy documentation,
security selection and portfolio
construction, engagement andactivism, themed and targeted
investments, and manager selection
and monitoring—to exert influenceon the characteristics of the system.

Investment enhancement: A closer lookPut in practice: Opportunity generation
Opportunity generation
techniques
Addressing disparities of opportunity
among stakeholders within a system,
locally as well as globally and using
each asset class to enhance the valueof environmental, societal andfinancial systems.

Opportunity generation: A closer look

The Big 4 Ideas:#1: Systems are important…really important#2: There is now a baseline of theory and practice for system-level
investing#3: Investors are demonstrating how to adapt policies, programs,
and practices to the system level and adopt new techniques#4: A global community of practice is taking shapeAt all the steps inany investor's
process…

#1 Deciding where to focus“We make our climate
commitments with theexpectation thatgovernments will follow
through on their own
commitments to ensure theobjectives of the Paris
Agreement are met. Ourcommitments are based on
our interpretation of what
the science tells us about theimperative to reducegreenhouse gas emissions,
our investment beliefs, what
we have heard from UPP’s
members and what weunderstand to be ourmechanisms as an investor
to catalyze the transition toa resilient, net-zero world.”
Source: UPP Climate Action Plan

#2 Settinggoals

#3 Allocating assets

#4 Adapting Conventional Tools

#5 Utilizing advanced techniquesSource: Fidelity International - 2023 Nature Roadmap

#6 Evaluating results
Company/portfolio level

Select indicator buckets from the Human Rights
Campaign HRC “2023 Corporate Equality Index”:
Strategy and Governance• Senior management/executive performancemeasures include LGBTQ diversity metrics
Recruitment/Retention/Promotion Rates• Data collection forms that include employee
race, ethnicity, gender, military and disability
status — also include optional questions on
sexual orientation and gender identity.
Benefits & Services• Equivalency in same- and different-sex
spousal/domestic partner medical and softbenefits• Equivalency in spousal and domestic partnerfamily formation benefits regardless of sex• Equal health coverage for transgenderindividuals without exclusion for medicallynecessary care

Source: Colorful Capital’s IMM Framework

Industry/sector level

Select indicators from TIIP for understanding industry/sector-level change
in the financial community:
Field building● A substantial percentage of investors join or establish organizations
that build the financial system’s capacity to address LGBTQIA+inequity● A substantial percentage of investors participate in and otherwiseamplify public policy debates about governmental rules andregulations that impact exposure to the risks of LGBTQIA+ inequity.
Investment Enhancement● A substantial percentage of investors help to establish standards andnorms that provide the basis for engagement or investment
in/divestment from industries related to LGBTQIA+ inequity.
● A substantial percentage of investors pursue investments andpromote business models that help to resolve LGBTQIA+ inequity,rather than profit from it.
Opportunity generation● A substantial percentage of investors use financial products explicitly
designed to address LGBTQIA+ inequity and design new products
when necessary.
● A substantial percentage of investors maximize the utility of specificasset classes for addressing LGBTQIA+ inequity.

System level

Select indicator buckets from the UNDP setof “Proposed Indicators for the LGBTI
Inclusion Index”:

Financial Stability• Ratio of percentage of LGBTI population
below poverty threshold to thepercentage of overall population below
poverty threshold• Ratio of average annual earnings forindividual LGBTI people to average
individual earnings for overall populationWorkplace Equity and Corporate Giving• Percentage of LGBTI people who reportexperiencing employment discriminationin the last 12 months• Ratio of percentage of LGBTI labour
force that is unemployed to percentageof overall labour force that isunemployedSelect institutions that have participated in our investor cohort and training
programs...**Launching new programs in Asia Pacific, and the UK and EU this summer - register now!

An evidence base is being constructed...**Made possible by the Surdna Foundation

Thank you!
William Burckart
CEO, TIIP
wburckart@TIIProject.com