From silos and projects to systems and missions: crowding finance and people into integrated visions

Symptoms and silos

In October 2020, a joint report by Nature Conservancy, the Paulson Institute and Cornell University estimated that there is a funding gap of up to US$824 billion per year between now and 2050 to make the necessary investments to avert massive biodiversity loss from human activity – from unsustainable business and consumer practices to climate change.

This is the latest funding gap to be have been singled out to address yet another symptom of our still-unsustainable way of life and our still-unfit-for-purpose financial architecture. The list goes on: a US$ 114 billion per year funding gap for access to water and sanitation; US$ 170 billion for rural agriculture; US$ 350 billion for forest restoration; over US$ 1 trillion for sustainable urban infrastructure.

While it is important to highlight these specific shortfalls, a major problem is that the response and associated funding initiatives have so far tended to be siloed: symptom-specific impact bonds (e.g. blue bonds for marine conservation), advocacy and initiatives for greater prioritisation of investments in specific SDGs, the multiplication of project preparation facilities for attracting certain types of finance.

Further complicating the arranging of finance, in addition to being theme or sector-focused, present-day finance remains product-focused (e.g. project finance, PPP, equity investment, etc.) or mandate-bound (e.g. climate finance, philanthropy, development finance), each with their rules, participants and conditions, and with too few bridges between them.

Nexuses, missions, and systems

According a recent working paper from Green Climate Fund, greater policy integration across SDGs could cut investment amounts in energy, transportation, water supply and sanitation, flood protection and irrigation by nearly half in low- to middle-income countries.

However, this is more than just a matter of efficiency: these failures and funding shortfalls are all symptoms of wider, entangled – indeed, systemic – failures. The resulting funding approaches should be equally designed for integrated outcomes.

Integrated visions of varying degrees of ambition are being promoted as holistic frameworks for funding. Some are explicitly multi-sectoral, such as the water-energy-food nexus; others are place-based like urban resilience or transit-oriented development; some are more abstractly defined around societal aspirations, such as the Circular Economy or more generically what trailblazing economist Mariana Mazzucato’s has coined as “missions” – coherent, multidimensional visions within which goals and solutions can be designed – which are now inspiring some of today’s most disruptive approaches to development finance (such as the upcoming Scottish National Investment Bank) and economics.

And across these integrated visions, a more generic framing of development and policymaking through the lens of ‘systems thinking’ and complexity theory is inspiring a swelling focus on “seeing” complex systems and the design of more holistic, patient funding approaches – something I discuss in the previous blog post.

Broccoli in the lasagne: financing integrated logics

These integration logics can be used to frame what computing and business strategists describe as “innovation sandboxes” through which silos and sectors are dissolved.

Evidence is growing that when creative forces are crowded into such integrated logics, integrated financing solutions can emerge.

For instance, mission-driven financiers are experimenting with resilience bonds, with financial instruments to promote the circular economy and even with funding approaches for the more dynamic pursuit of system change. It is these vision-led financial solutions that arguably offer some of the most transformational avenues for financing cross-cutting, systemic issues, including climate change.

Indeed, if the positive climate outcomes emerging from these integrated logics can be outlined with greater clarity, then climate finance can be applied to investing in diverse portfolios of activities within these logics, rather than siloed finance for individual sectors and activities. Or as a senior sustainable finance professional put it to me recently when comparing dealing with sustainability-driven investors to feeding his children (I’m paraphrasing): “you can get them to eat the broccoli with the lasagne”.

Let’s take the circular economy as an example of an “investible” integrated logic: according to research commissioned by the Ellen MacArthur Foundation, “applying circular economy strategies in just five key areas (cement, aluminium, steel, plastics, and food) can eliminate almost half of the remaining emissions from the production of goods – 9.3 billion tonnes of CO2e in 2050 – equivalent to cutting current emissions from all transport to zero.” Circular economy-inspired plans with strong climate-positive effects could be designed to attract green finance for entire portfolios of activities rather than for taxonomy-specific activities.

From scaling up the few to setting directions for the many

Missions should be broad enough to engage the public and attract cross-sectoral investment; and remain focused enough to involve industry and achieve measurable success. By setting the direction for a solution, missions do not specify how to achieve success. Rather, they stimulate the development of a range of different solutions to achieve the objective.

Excerpt from “A mission-oriented framework for the Scottish National Investment Bank”, by Mariana Mazzucato and Laurie Macfarlane (Institute for Public Purpose – UCL, March 2019)

One of the most systemic shifts that humankind could undertake towards recognising the entanglement of present-day civilisation and engage with it in masse would be to shift our very way of working from sector-siloed competition for resources to collaboration – in other words, being more “systems-aware” and making consortium-building the rule when tackling systemic failures like climate change, pollution and endemic poverty.

Not to mince words, this would constitute a fundamental civilisational shift. Looking at progress through this lens, the proliferation that we are now witnessing of so-called multi-stakeholder partnerships can be interpreted as an intermediate step towards a more generalised “systems-aware”, lab-like way of working.

Many of these partnerships seem to be more concerned with either how many organisations are part of the partnership or with the variety of participants (governments, private sector, civil society, non-profit organisations, etc.) rather than with the integrated vision that could be their driving purpose. And yet, as highlighted by a recent survey of over 40 such multi-stakeholder partnerships by the World Resources Institute, one of the key success factors for such partnerships is a “jointly agreed-upon transformation vision” along with “intermediate goals and activities”, which can only be truly purposeful with a shared understanding of the system within which the partnership will intentionally act.

Crowding public and commercial interest into integration logics is a promising way of getting people and institutions to be more disciplined about noticing systems and entanglements, driving innovative energies into more cross-cutting solution design and eventually – hopefully – recognise that the complexity of certain situations requires moving past solution-designing to designing greater capacity to adapt.

Until this transformation happens, and until our ways of arranging finance can be more fit for purpose than in their current fragmented, siloed, short term-biased state, there is a need for “mission-minded brokers” to channel these multi-stakeholder partnerships and social labs towards green(er) integrated visions.

Because of their redistribution and rule-making capability, governments at national and local level are some of the unavoidable institutions to occupy this broker role and set the direction of these “missions”.

But governments should not be left alone to do this. When it comes to complex systems, if there is resilience in variety (i.e. lots of different ways to durably achieve shared intended societal outcomes) and if the endgame of our current drive for transformation is a shift in our very way of working together, then there is a large empty space for more “mission-driven brokers” to occupy.

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