21st Century Investing

What if the future of your investments depended not only on the next market swing, but on the health of the planet, society, and institutions that make the market possible in the first place? In 21st Century Investing: Redirecting Financial Strategies to Drive Systems Change, William Burckart and Steve Lydenberg ask investors to reconsider their purpose. They argue that in our deeply interconnected world, traditional investing—focused on beating benchmarks or earning short-term profits—is dangerously outdated. The book proposes a radical yet practical reorientation: move from conventional to sustainable, and finally to system-level investing, a model designed to safeguard and strengthen the social, financial, and environmental systems that underpin all economic activity.

Burckart and Lydenberg, cofounders of The Investment Integration Project (TIIP), draw on decades of work in sustainable finance to show how investors—from pension funds and endowments to individuals—can be active agents of systemic progress. Their thesis is simple but profound: healthy, resilient systems generate sustainable financial returns. The book provides a six-step process for implementing this approach: setting system-level goals, deciding where to focus, allocating assets strategically, applying and expanding investment tools, leveraging advanced techniques, and evaluating results based on systemic impact, not just profit.

Why Investment Must Evolve

Traditional portfolio management, rooted in Modern Portfolio Theory (MPT), treats markets as efficient and external to investors’ influence. But as the authors remind us, this illusion broke during the 2008 financial crisis. Investors themselves helped cause the collapse through overleveraged, short-term bets—proving that investor behavior can destabilize entire systems. If private actions can harm markets and societies, then intentional, coordinated actions can also heal them.

The authors distinguish between three stages of investing: conventional, sustainable, and system-level. Conventional investors chase market returns with little regard for social or environmental consequences. Sustainable investors integrate Environmental, Social, and Governance (ESG) factors, seeking to avoid harm or generate specific impacts. But system-level investors go further—they aim to reshape the fundamental systems that determine long-term risk and reward. As Burckart and Lydenberg note, “All investors have system-level impacts, whether they choose to manage them or not.”

The Stakes: Fragile 21st-Century Systems

The authors argue that we face intertwined systemic crises. Social systems—strained by inequality, racial injustice, and populism—are producing political and social instability. Financial systems—warped by short-termism and speculative excess—no longer align with long-term value creation. Environmental systems—destabilized by climate change, resource depletion, and biodiversity loss— threaten physical survival. Each of these systems is interconnected, meaning a failure in one ripples through the others, as seen in the global fallout from COVID-19.

For Lydenberg and Burckart, the challenge is to rebuild “guardrails” through investment choices that reinforce the resilience of these systems. The authors point to paradigm shifts—from fossil fuels to renewables, or from shareholder primacy to stakeholder capitalism—as necessary course corrections. They call this approach a “third stage” of investing, where capital becomes a tool for safeguarding the very foundations on which it depends.

How System-Level Investing Works

The framework offered in this book is methodical and actionable. Investors must first set goals that address systemic challenges—like reducing income inequality or fostering climate resilience—rather than narrow metrics such as individual company returns. Next comes focus selection, identifying which complex systems warrant investment effort, guided by four criteria: consensus (is the issue widely recognized?), relevance (does it affect all sectors?), effectiveness (can investors influence it?), and uncertainty (are the risks beyond conventional management?).

Asset allocation and strategy then follow. The authors show that each asset class plays a distinct role in system resilience: equities can influence corporate norms; bonds fund public infrastructure; real estate shapes sustainable communities; and venture capital finances innovation. Traditional tools—like security selection, engagement, and policy statements—are adapted to system-level purposes. And beyond these, investors adopt advanced techniques such as field-building collaboration, policy advocacy (“polity”), standard setting, and opportunity generation in underserved areas.

From Theory to Practice

Throughout the book, examples demonstrate that this approach is not abstract philanthropy—it’s already in action. CalPERS, the largest U.S. pension fund, integrates human, physical, and financial capital into its risk framework and collaborates globally through Climate Action 100+. The Caisse de dépôt et placement du Québec (CDPQ) invests directly in Montreal’s sustainable infrastructure. The Church of England Pensions Board engages mining and energy companies to improve global safety standards. And the Rockefeller Brothers Fund divested from fossil fuels, using its legacy wealth to set new industry norms.

Individual investors are not excluded. They can direct cash toward local development banks, choose funds aligned with Sustainable Development Goals (SDGs), and pressure financial advisors to adopt systemic evaluation frameworks. The lesson is clear: size matters less than intentionality. Even small investors help tip large systems.

Measuring What Truly Matters

Traditional performance metrics—quarterly returns, portfolio volatility—fail to reveal systemic impact. System-level investors demand new evaluative lenses that combine financial performance with social and environmental outcomes. Drawing on measurement pioneers like the Impact Management Project and IRIS+, Burckart and Lydenberg propose a due diligence framework rooted in judgment, integrity, and consistency. The question shifts from “How much did the fund make?” to “Did the investment strengthen the systems on which future returns rely?”

Why This Matters Now

As the authors conclude, the time for this evolution is short. The 21st century’s defining risks—climate disruption, inequality, pandemics—will not wait for incremental reform. A transition to system-level investing is not only a moral imperative but a fiduciary one: safeguarding long-term value means protecting the systems that create it. “Investors have the power to make societies, markets, and the environment resilient,” they write. “But a new way of thinking—balancing market returns with benefits for society—is needed.” This book gives that roadmap, demonstrating that the future of finance, and the fate of our world, are inseparable.

Burckart and Lydenberg begin with a simple but pressing question: what are we trying to achieve when we invest? Too many investors, they argue, pursue short-term gains while ignoring the long-term damage caused to the very systems that support their wealth. To illustrate, they retell Leo Tolstoy’s The Big Oven—a fable about a man who burns down his own house to feed his furnace, a metaphor for our self-destructive economic behavior. Likewise, investors pursuing quarterly profits may inadvertently set ablaze the social and environmental foundations of their prosperity.

From Modern Portfolio Theory to System-Level Purpose

Modern Portfolio Theory (MPT), developed in the mid-20th century, revolutionized investing by promoting diversification to manage risk. But MPT assumes that markets function outside investor influence and that systematic risks—like economic collapse or climate change—are beyond control. Burckart and Lydenberg counter this assumption: investors are participants in these systems and therefore partly responsible for their stability or breakdown. The 2008 crisis proved that market behavior, not just market forces, can imperil the global economy.

Three Stages of Investing Evolution

• Conventional investing focuses on beating market benchmarks and maximizing returns, assuming social outcomes are someone else’s problem.
• Sustainable investing integrates ESG metrics—such as carbon emissions or labor practices—into decision making, balancing ethics with performance.
• System-level investing adds a new dimension: using capital to strengthen the social, financial, and environmental systems that underpin all markets. It asks investors to be stewards of systemic resilience.

Understanding Interconnected Systems

The authors define three clusters of systems as critical for investors: social, financial, and environmental. Social systems buckle under inequality and eroding trust; financial systems suffer from speculative excess and short-term thinking; environmental systems collapse under climate instability. When one fails, others follow—COVID-19, as the book notes, triggered a cascade across all three. Investors can no longer isolate their portfolios from these global realities.

Setting system-level goals requires identifying and addressing the paradigms that drive dysfunction. For instance, shifting from fossil fuel dependence to renewable energy is not just about energy firms—it’s a paradigm shift about resource use, consumption, and growth. Similarly, reducing inequality requires rethinking executive pay, taxation, and labor relations across industries.

Collaborative Goal-Setting

At the system level, goals cannot be achieved by one investor alone. Coalitions such as Climate Action 100+, a network representing $35 trillion in assets, show what collective engagement can accomplish. Their joint negotiations with major emitters like Nestlé, Rio Tinto, and Volkswagen have already produced commitments to net-zero emissions. These collaborations transform isolated corporate pressure into systemic momentum. As Burckart and Lydenberg emphasize, investors must think like engineers of entire ecosystems—coordinating efforts, pooling resources, and redefining success not by beating benchmarks, but by preserving the Earth’s investing foundation.

After establishing goals, investors must decide which systemic issues to tackle. Chapter Two offers a detailed framework built on four criteria—consensus, relevance, effectiveness, and uncertainty—to separate worthy systemic concerns from narrower investment themes.

The Four Criteria for System-Level Focus

• Consensus: Focus on issues with broad recognition of importance—like climate change or poverty reduction. Global agreements such as the UN Sustainable Development Goals signal legitimacy.
• Relevance: A systemic issue affects most industries and asset classes. For instance, income inequality influences economic growth, political stability, and consumer demand, cutting across the entire market.
• Effectiveness: Investors should choose issues they can realistically influence—via capital allocation, engagement, or collaborative action. Access to healthcare, for example, may be improved through investments in both infrastructure and policy advocacy.
• Uncertainty: Systemic issues often entail unpredictable, “fat-tail” risks that defy traditional portfolio models. Climate change is a prime example, creating both severe hazards and transformative opportunities.

A Case Study: Water as a Systemic Issue

The authors illustrate their framework with freshwater access. Water earns global consensus as a human right; it is relevant across agriculture, industry, and real estate; investors can enhance water effectiveness through infrastructure and technological innovation; and its long-term sustainability faces profound uncertainties due to glacier loss and aquifer depletion. From municipal bonds funding wastewater systems to venture capital for desalination startups, water exemplifies a holistic issue suitable for system-level intervention.

Deciding where to focus, then, means identifying leverage points that address not symptoms but root causes. Burckart and Lydenberg urge investors to aim high in the system hierarchy—addressing income inequality, climate resilience, or biodiversity, rather than isolated subproblems. Their advice builds on Donella Meadows’s systems theory: effective change begins at the level of shared beliefs and rules governing the system, not at the level of isolated events.

Every asset class plays a specific social and economic role, and choosing how to allocate among them defines how investors can influence systems. In Chapter Three, the authors show how smart allocation turns portfolios from passive holdings into engines of systemic benefit. They illustrate this through case studies from foundations and pension funds aligning all their assets with mission goals.

Equities: Shifting Corporate Norms

Public equities allow investors to influence corporate behavior across industries. CalSTRS’s $2.5 billion Low-Carbon Index, covering hundreds of global firms, sets a model for climate-conscious portfolio construction. As a shareholder, CalSTRS also led engagements under the Climate Action 100+ initiative, persuading companies like Duke Energy to halve emissions by 2030. Such actions turn shareholder engagement from a company-level tactic into a system-level strategy.

Private Equity and Venture Capital: Funding Innovation and Regional Growth

The Caisse de dépôt et placement du Québec (CDPQ) demonstrates how private equity can build regional economic systems. It invests directly in Montreal’s transport network, clean energy, and AI startups—simultaneously earning financial returns and strengthening Quebec’s economic fabric. Venture capital, meanwhile, offers disruptive power for system solutions, from renewable energy breakthroughs to regenerative agriculture.

Fixed Income: Financing Public Goods

Bonds can finance systemic infrastructure—water systems, hospitals, green energy grids. Development of the green bond market, initiated by institutions like Bank of America and the European Union, shows how investors can institutionalize markets for sustainability. This market reached nearly $1 trillion in 2019. Similarly, the Heron Foundation’s fixed-income investments in California’s farmworker housing illustrate how loans can foster local systems of equity and opportunity.

Real Assets and Infrastructure: Building Community Systems

Prudential’s billion-dollar commitment to revitalize Newark, New Jersey—through mixed-use real estate, arts districts, and local business financing—demonstrates how infrastructure investment can regenerate entire communities. Such investments build durable “system fortifiers.” Whether through large institutions or local credit unions, asset allocation becomes a map for resilience: each asset class expresses a different way to strengthen the systems in which investors live.

In Chapter Four, Burckart and Lydenberg show investors how to evolve familiar investment tools—belief statements, portfolio construction, engagement, and manager selection—into mechanisms for systemic influence. The idea is to shift from isolated ESG actions to integrated, system-aware strategies.

Shaping Investment Beliefs

An investment belief statement (IBS) articulates how a fund views its role in markets. CalPERS’s IBS explicitly names climate change as a systemic risk and calls for responsible environmental practices. Similarly, Mercer asserts that integrating ESG and systemic issues like sustainable development leads to better outcomes for pensioners. Crafting such statements guides decision-making and signals credibility within financial networks.

Enhancing Security Selection and Portfolio Construction

Many investors now embed ESG criteria into securities analysis—but system-level investors go further, setting standards across industries. For example, the Rockefeller Brothers Fund moved from divesting a few fossil fuel firms to excluding the industry entirely. Conversely, Caisse de dépôt’s real estate arm invests directly in sustainable infrastructure and LEED-certified buildings, proving that positive inclusion matters as much as exclusion.

Engaging for Systems Change

Engagement becomes systemic when investors collaborate. The Swedish Council on Ethics, which united four national pension funds, moved from pressuring individual mining firms like Vale to creating global safety standards for tailing dams. Hermes Investment Management’s EOS division does similar work, aggregating investor concerns across portfolios to push industry-wide reforms on issues like human rights and climate disclosure.

Selecting and Evaluating Managers

Finally, manager selection determines alignment between investor philosophy and practice. Aviva Investors, for instance, evaluates external managers based on their ESG integration and engagement record. CalPERS includes ESG-related questions in manager assessments, ensuring that their external partners support systemic stability. By embedding system-level metrics into traditional tools, investors transform due diligence into a catalyst for global change.

To truly influence global systems, investors must adopt advanced, often collaborative techniques that operate beyond their portfolios. Chapter Five introduces ten such tools within three categories: field-building, investment enhancement, and opportunity generation. These allow investors to target high-impact leverage points.

Field-Building: Collaboration and Policy

Field-building techniques strengthen the investment ecosystem itself. Self-organization—as seen in Charly and Lisa Kleissner’s KL Felicitas Foundation—mobilizes networks like Toniic, which unites global impact investors managing $4.5 billion across 25 countries. Interconnectedness spreads knowledge through initiatives such as CalPERS’s Sustainable Investment Research Initiative (SIRI), making ESG data publicly accessible. Polity engages investors in policy reform: Aviva’s Steve Waygood, for example, presented UN-backed proposals for capital market reform to integrate sustainability into regulation.

Investment Enhancement: Standards, Solutions, and Diversity

Enhancement techniques improve how markets function. Standards setting builds legitimacy, from the Sullivan Principles against apartheid to Norges Bank’s divestment from weapons and tobacco. Solutions investing targets opportunities like PGGM’s allocations to water and food security solutions, measured by tangible outcomes. And diversity of approach, exemplified by New Zealand Superannuation, tackles systemic risks like climate change through multiple coordinated strategies—low-carbon portfolios, policy advocacy, and research sponsorship.

Opportunity Generation: Expanding the Investment Horizon

These techniques cultivate new markets and social capital. Additionality targets underserved populations, as in Bridges Fund Management’s investments in youth employment. Evaluations measure non-financial capitals, following Cbus’s six-capitals model. Locality anchors investments in regional ecosystems, like Ireland’s Strategic Investment Fund supporting post-crisis redevelopment. Finally, utility aligns asset classes with their social functions—where bonds finance public goods and equities influence corporate behavior.

These tactics blend innovation with tradition, using finance as infrastructure for progress. The authors liken them to Donella Meadows’s “leverage points” in a system—small interventions with massive transformative potential. Together, they form the operational heart of system-level investing.

Chapter Six confronts a challenge familiar to every investor: how to measure true impact. The Jessie Smith Noyes Foundation’s search for fund managers who could produce “long-term, systemic change” exposes a central issue—many claim sustainability, but few demonstrate systemic results. Burckart and Lydenberg therefore design an evaluation framework rooted in transparency, consistency, and principled judgment.

Principles-Focused Evaluation

Drawing on Michael Quinn Patton’s model, they propose that effective evaluations examine (1) whether guiding principles are clear and actionable, (2) whether they are followed consistently, and (3) whether they yield desired results. Four assumptions guide such analysis: managers must maintain consistency between words and deeds, blend quantitative metrics with qualitative judgment, recognize the inherent value of social and environmental systems, and strike enduring balance between short- and long-term priorities.

Six Due Diligence Questions

Investors should ask managers six key questions: Do they have clear, actionable system-related beliefs? Can they justify which challenges they address? Have they chosen appropriate techniques for systemic influence? Have they applied those techniques at effective leverage points? Have their actions generated positive outcomes? And have they fostered alignment among key stakeholders for lasting change?

Evolving Impact Measurement

The chapter reviews impact metric pioneers such as GRI, SASB, and IRIS+, which quantify ESG performance; IFC’s Operating Principles for Impact Management for standardized verification; and Morningstar’s sustainability ratings. These resources pave the way toward system-level evaluation, where success is measured in strengthened systems, not isolated projects. In essence, the authors reimagine due diligence as stewardship—where managers aren’t just managing money, but managing the stability of our shared future.

In one of the book’s most compelling case studies, Chapter Seven applies system-level investing principles to income inequality—arguably as dangerous to global stability as climate change. The authors trace how corporate fissuring, tax avoidance, and CEO pay inflation fractured connections between managers, labor, and society, creating both moral and financial vulnerabilities.

Diagnosing Systemic Inequality

Drawing on research from the IMF and scholars like David Weil (The Fissured Workplace), they show how subcontracting eroded wages and security, while executive compensation tied to stock price inflated inequality. Tax havens further undermined the social contract by starving governments of infrastructure funds. Investors indirectly fueled this spiral by rewarding cost-cutting and share buybacks over equity and inclusion.

Three Legs of Reform

System-level solutions rest on three supports. First, improved labor relations—investors can back workforce disclosure standards like the UK’s Workforce Disclosure Initiative and Responsible Contractor Policies. Second, fair taxation—long-term asset owners like Norges Bank have championed transparent, responsible tax practices as part of fiduciary duty. Third, equitable CEO pay—guidelines like France’s ERAFP cap executive compensation at 100 times the median worker’s wage, aligning leadership with social cohesion.

Translating Concepts into Action

By combining these measures across portfolios and asset classes, investors can rebalance the system. This involves setting explicit inequality-reduction goals, favoring companies with living-wage and tax transparency policies, and engaging regulators to reform incentive structures. Ultimately, Burckart and Lydenberg show that fighting inequality isn’t charity—it’s risk management. Stable, inclusive economies generate stronger markets. System-level investors safeguard prosperity by restoring fairness as a core function of capitalism itself.

In the final chapters, Burckart and Lydenberg showcase institutions already making the leap toward system-level investing. These stories—from massive pension funds to family foundations—prove that transformative investing is not theoretical but underway.

Six Pathways to Change

• Universal ownership: Japan’s Government Pension Investment Fund treats itself as a steward of the global economy, collaborating with CalSTRS and USS to promote sustainable capital markets.
• Stewardship: The Church of England Pensions Board aligns assets with moral obligation, leading global initiatives for mining safety and climate disclosure.
• Long-term value creation: Norway’s $1 trillion Norges Bank Investment Management integrates ethics, sustainability, and performance, divesting from industries incompatible with future stability.
• Impact investing: The KL Felicitas Foundation and Toniic network work to transform the entire impact ecosystem, not just their portfolios.
• ESG integration: Allianz fully embeds ESG into its insurance, asset management, and investment products, making systemic responsibility a business model, not a sideline.
• Standards setting: The Rockefeller Brothers Fund uses full fossil fuel divestment to redefine philanthropy and demonstrate financial performance through principle.

Taking the First Steps

Burckart and Lydenberg offer scenarios for how different investors might embark on this journey. A pension fund broadens its climate framework to address systemic risk; a family office pivots its wealth management around income equality; a private equity firm leads data transparency reform. Each starts small—through belief statements, risk analysis, and collaborative engagement—but evolves toward system-wide influence.

As the authors conclude, system-level investing is not about perfection but progress. Each action—choosing ethical managers, engaging peers, shaping policy—contributes to resilient markets. In short, investors are not observers of global change; they are its architects. The time to act, say Burckart and Lydenberg, is now.