Dominic Hofstetter
Dominic Hofstetter is the Space Building Lead of the TransCap Initiative. He initiated and incubated the TransCap Initiative when he was the Director of Capital and Investments at EIT Climate-KIC, Europe’s largest climate innovation initiative, where he was responsible for building the organization’s nascent investment function. Before joining EIT Climate-KIC in 2015, Dominic had worked as an entrepreneur at the renewable energy start-up Electrochaea, as a private equity investor at Hudson Clean Energy Partners, and as a finance professional in the institutional asset management division of Credit Suisse. He holds an MBA from the University of Chicago Booth School of Business and an MSc from the Environmental Change Institute at the University of Oxford.
What we learnt
Dominic explained how his organisation TransCap Initiative (TCI) is advancing the field of systemic investing through systems thinking and complex systems science to address societal problems through strategic deployment of capital. Systemic investing involves a new investment logic that emphasizes leverage points, funding architecture, and combinatorial effects. This approach is different from traditional finance or impact investing and involves systems analysis to understand where a system is and where it needs to go. It creates a causal loop that identifies leverage points and guides a comprehensive systems intervention approach. Strategic investment portfolios are then created that are multi-asset class and capable of accepting different risk profiles and maturities.
TCI operate as a collaborative innovation space in a nonprofit logic, spanning three major areas: Research and Innovation, where they develop the conceptual underpinnings; Prototyping, where they put the theory into practice; and Field Building, which is about building a community of practice at the global stage. Their mission is to give a stage to organizations and pioneers in this space, and inspire others to inform the theory and methods of their projects and partnerships. They have partnerships with various organizations, including MIT Impact, and Meridian Institute, and are developing a systemic investing summit by 2024.
Dominic highlighted the importance of using various tools and methods of systems thinking and complex systems science to analyze and transform complex systems, and the limitations of using discounted cash flow analysis as the sole tool for investment decision-making. The conversation also touched on the need for social trust building and strategic partnerships to translate climate action plans into climate investment plans.
The conversation showcased a new investment paradigm for impact investing that is gaining resonance among private wealth impact investors and major players in multilateral development finance.
Key quotes
‘All the goals that we're setting out as an impact community to address, be it climate change, biodiversity loss, social inequities, physical health, mental health, etc., can all be characterized as complex systemic challenges.’
‘The question we were facing is, what is the role of innovation in driving systems change? And what's the role of investment capital in driving systems change? This question was put to me as a strategy question, but it quickly turned out to be an innovation question in its own right because it's not all that clear what the role of investment capital is in driving systems transformation, mainly because it hasn't been studied.’
‘Systems change is very rarely the result of a single intervention in a system. Most often, it's the result of multiple changes that are aligned strategically, happening simultaneously in multiple places in the system.’
‘Our entry point is not finance at large. So systemic investing for us isn't a matter of necessarily going to big banks and talking to them about systems thinking. It's about first figuring out what very specific human systems, social, what scientists call socio-technical systems, need in terms of inputs into change. And then working backward to what that means for finance.’
‘I believe that when you are serious about applying systems thinking to the challenge of funding systems change, you will end up with a new investment logic.’