“Systems change” has become a ubiquitous topic of interest for anyone serious about addressing our multiple social-environmental-economic-governance crises. Yet for all its ubiquity, the term tends to be applied very loosely, to many different things. Sometimes it means changes to an old system, but it might also be used to describe the expansion of an old systems change that has since been superseded by a new approach. Diverse perspectives on systems change are valuable, but a cacophony of different meanings can confuse the issue and produce ineffective investment strategies, even contribute to deep problems in financing systems change.

In our view, financing systems change is best understood as comprising three distinct types of change: experimentation, redesign, and optimization. Clarifying these interconnected modes of change helps distinguish understand the different processes at work: “experimentation” means a change in goals and values, and defining what is possible, “redesign” means a change in rules and processes to create an enabling environment, and “optimization” means spreading the implementation of that change as broadly as possible. Each mode of financing systems change requires different financing approaches: experimentation is usually done by novel and alternative financiers. System redesign involves changing behavior and products of existing financiers whereas in the system optimization phase both alternative finance and altered financial products are scaled up.

1. System Experimentation to Finance Systems Change

At the beginning of a potential transformation, a fundamentally new and disruptive activity or practice arises that will require broad economic, social, political, and/or cultural changes for its wide application. Whether or not those leading the activity may or may not have a transformational intent, the innovation is transformational if it requires an “opening up” of the traditional system’s assumptions, values, and fundamental goals. At this stage there are also, typically, alternative transformation models: with the invention of individual self-propelled vehicles, for example, steam and electric technologies competed with gas-powered ones, while wind and solar are only two of the numerous technologies involved in the clean energy transition.

2. System Redesign

After potentially viable prototypes are identified, a transformational innovation and financing systems change requires changes in the enabling environment that could support its widespread adoption. This is the “field development” stage of building new policy frameworks, as well as both organizational and physical structures to support the implementation of the transformational innovation. When the new enabling environment is destabilizing, habits, preferences, structures, and popular practices must also be changed.

Read the full article about financing systems change by Steve Waddell and Friedemann Polzin at Stanford Social Innovation Review.