• AIQ - The Macro Stewardship Edition
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  • Responsible Investing

The levers of change

A systems approach to reconcile finance with planetary boundaries

Financial services underpin all economic activity, which itself depends on Earth’s natural capital. Resolving their interconnected issues to bring about a just transition will require a holistic, systems-thinking approach.

Read this article to understand:

  • What systems thinking entails
  • The paradigms and feedback loops that must be changed to transform the financial and economic system
  • The key levers to enable this transformation

The debate around the planetary limits to economic growth has been around for decades, first coming to light with the 1972 publication of the book Limits to Growth, commissioned by the Club of Rome and written by Donella Meadows, Jorgen Randers, Dennis Meadows and William W. Behrens III.1 It was long confined to the sidelines as companies, policymakers and the mainstream economists who advised them ignored the notion of Earth’s finite ability to provide resources, absorb waste and sustain economic growth.

Indeed, the Limits to Growth model shows that “once the population and economy have overshot the physical limits of the Earth, there are only two ways back: involuntary collapse caused by escalating shortages and crisis, or controlled reduction of the ecological footprint by deliberate social choice”.2

As argued by Aviva Investors CEO Mark Versey in Redefining stewardship, this means no longer treating responsible investing as a niche category but redeploying all capital towards sustainable investments.3

Background to and influence of Limits to Growth4

Limits to Growth used the World3 computer model to simulate the consequences of interactions between the Earth and human systems – population increase, agricultural production, non-renewable resource depletion, industrial output, and pollution generation. The simulations showed the planet probably cannot support present rates of economic and population growth much beyond the year 2100, if that long, even with advanced technology.

It has sold over 30 million copies worldwide and sparked much debate but did not break into mainstream analysis until recently.5

Today, as traditional economic analysis and policy fail to stop resource depletion, pollution, biodiversity loss and global warming, as well as rising inequality, economists and policymakers are turning to the book’s systems-thinking approach as a better way to understand the economy’s interactions with people and the planet, and to come up with sustainable solutions.

Systems thinking for systems change

Donella Meadows defined a system as “an interconnected set of elements that is coherently organised in a way that achieves something.” In Limits to Growth, she and her co-authors argued demography, the economy and the environment together embody one planetary system with innumerable interactions.6

“The idea of being able to look outside the box and make connections was pivotal,” says Dr. Nafeez Ahmed, director of global research communications at thinktank RethinkX, of Limits to Growth (see ‘Know your limits: An interview with Nafeez Ahmed’).7

However, systems don’t always achieve what we want them to. Stocks and flows are a system’s core elements – notions that will be familiar to many in the financial realm – while feedback loops are the interconnections between those stocks and flows that influence them.

Figure 1: Positive and negative feedback loops
Positive and negative feedback loops
Source: Aviva Investors, August 2022. Adapted from Rafael Laurenti, May 20168

As explained in Limits to Growth, changing a system therefore requires changing the structure of those information links: “the content and timeliness of the data that actors in the system have to work with, and the ideas, goals, incentives, costs and feedbacks that motivate or constrain behaviour.”9

The OECD published a 2020 paper that set out new economic goals – environmental sustainability, improved wellbeing, lower inequality, and greater resilience. It argued these need to be built into the structures of the economy from the outset, alongside integrated policy and performance indicators, requiring extensive institutional innovation.10

Tackling the root causes of a problem is often difficult because it takes more time and money and can entail more uncertainty than applying a “quick fix”.11 It typically requires changing the goals of the system (creating a “paradigm shift” in systems terms).

Flawed paradigms

Companies, investors and policymakers need to look beyond shareholder value maximisation, modern portfolio theory and GDP. And although recent debates have questioned the role of the financial industry and ESG investing in the transition to a more sustainable economy, macro stewardship will be central (see Redefining stewardship: Why stakeholder capitalism needs to wake up).

“One of the fundamental things missing from any debate which says this is solely the preserve of governments is a recognition of the scale, influence, and expertise of the financial system,” says Tayler. “A lot of the answers and ideas lie within the system itself.

“Yes, governments have the primary levers, but we must use our expertise and insights to ask them to give us the right enabling conditions to achieve net zero, biodiversity and social goals, and ultimately to help make that paradigm shift,” he adds.

This also means shifting a paradigm of finance itself: industry players need to understand they don’t have to passively accept the level of risk of the system but can instead try to influence it.

To change mindsets in financial services, Jess Foulds, senior manager for global responsible investment at Aviva Investors, recommends using an array of approaches to change incentives – embedding long-term value creation in individuals’ assessments, for instance – and education, including MBAs and the CFA.12

This shift is needed in both financial and economic policy. Key policy influencers and actors recognise this, and are now calling for profound change, as well as proposing solutions. For instance, Earth4All is a collective of leading economic thinkers, scientists, and advocates offering a vision for a new economic and social approach.13

Sandrine Dixson-Declève, Earth4All project lead and co-president of the Club of Rome, says: “For governments, we recommend moving beyond a singular focus on economic growth to include natural and social capital.”

Tackling the feedback loops

Unfortunately, the interventions to date have not been of a scale or nature to deliver systemic change.  

“The finance system is critical because we have built our global economy around it,” says Tayler. He adds that, if the theoretical role of finance – through investment, underwriting and banking – is to allocate capital to where it will best serve society, then the financial system is not working as it should.

“Taking a systems-thinking approach to the role of financial services, our duty to act in the best interests of clients and to promote market integrity should extend to issues that undermine markets and financial stability,” says Foulds.

Figure 2: The current architecture does not deliver optimal outcomes for society
The current architecture does not deliver optimal outcomes for society
Note: This is not a completely exhaustive view – but highlights key global organisations due to their mandate. *Illustrative examples.
Source: Aviva Investors, September 2022

Foulds argues that, to correct those market failures, the finance system must engage with governments, policymakers, and global regulatory bodies to reset the rules and align incentives and penalties with sustainable behaviours.

Systems change typically follows an S-curve: early adopters gradually push boundaries, then comes an inflection point when change becomes self-reinforcing and exponential. The financial and economic system is still in the early adoption phase, but when change takes off, the impact could be game-changing.

Markets are incredibly powerful. If you give them the right goal, they can become an enormous accelerator for sustainable action

“Markets are incredibly powerful,” says Tayler. “If you give them the right goal, they can become an enormous accelerator for sustainable action. That is why there is still hope, despite how late we have left it, because we haven’t really gone “all in” on concentrated climate action yet as a society.”

A powerful way to do this is to use “ambition loops”, whereby governments set clear policies that give businesses the space to innovate and accelerate sustainability practices. “Financial markets want to allocate capital to businesses that will succeed in the new policy environment,” he says. “Instead of it just being a feedback loop, there is an even more powerful “triple helix” revolving on and reinforcing itself. That is how macro stewardship can be an accelerant to the positive ambition loop.”

But to achieve those transformations and create powerful new feedback loops, key leverage points must be actioned.

Applying maximum leverage

Donella Meadows identified the 12 most effective leverage points in a system.14 When mapping them out, Aviva Investors’ macro-stewardship team translated them into financial terms (stocks and flows of financial rather than physical resources, for example), and identified six areas of maximum leverage: fiscal policy; regulation; market mechanisms; standards and norms; consumer awareness and behaviour; and litigation.

“Different people might have more leverage in one particular area or put the fulcrum in a different place to make it more effective,” says Tayler. “But we need to use all these levers.” They will also overlap and bleed into each other at times, but nevertheless allow for a clearer breakdown of the necessary actions.

From a climate perspective, implementing a significant carbon tax will be essential

From a climate perspective, implementing a significant carbon tax will be essential, so the biggest emitters pay the price of their contribution to global warming and are incentivised to reduce emissions.

This will be helped if market mechanisms are used to internalise externalities, so we finally stop counting the consumption of natural capital as income and begin incorporating the cost of pollution and emissions.

Foulds believes the general push for greater disclosure of sustainability risks and, more recently, principal adverse impacts, particularly in EU regulation, is playing a key role. “Sustainability risks are predominantly those risks that are already financially material, but principal adverse impacts look at the impact investments will have on the environment and society,” she says.

Pushing for industry standards through relevant codes like the UK’s Stewardship Code is also important because, even before they become a regulatory requirement, these norms have a significant impact in shaping behaviours. However, Tayler adds investors engaging in macro stewardship must be transparent, to demonstrate they are not using their influence for narrow self-interest.

We should not rule out the ability to use litigation where we think it's the right thing to do

Concerned citizens are also increasingly acting through litigation, against both companies and governments.15 “As macro stewards, we should not rule out using litigation where we think it's the right thing to do, but we also need to understand the environment in which litigation is a material risk for governments and companies,” says Tayler.

Systems change is difficult by definition, requiring us to rewire what are often deeply ingrained ways of thinking and processing, and to fight against powerful vested interests. It would be easy to fall into passive acceptance of the status quo. However, such acceptance is not only dangerous; it also ignores the huge potential upside of reshaping outdated conventions.

Figure 3: Leverage points – from least to most effective

12. Constants, parameters, numbers

  • Size of the financial system / global economy and rate of consumption
  • Scale of regenerative ability of the planet
  • As the planetary boundaries work of Johan Rockstrom and the Stockholm Resilience centre shows, we can (and should) change rates of consumption and enhance the regenerative ability of the planet through reforestation, giving space for regeneration, rewetting peat bogs, and so on. But more substantial intervention is needed16

11. Size of buffers relative to their flows

  • This is about maintaining key stabilising forces (e.g., ice sheets, rainforests, ocean currents, etc.) and looking at the financial system – i.e., the capital buffers and scale of flows in the system

10. Structure of stocks and flows

  • The way money flows around the financial system (the plumbing)
  • Structure and mandates of the international financial architecture (see Figure 2 above)

9. Lengths of delays relative to the rate of system change

  • Short-termism is pervasive. Our ‘just-in-time’ approach to change means there are sometimes delays between regulatory interventions and their effects becoming visible. However, valuations often react quickly to signals from policymakers and regulators, so are much more volatile

8. Negative (correcting) feedback loops

  • Ratings, rankings, benchmarks (examples: WBA, CHRB, SSE, PRI, CDP)
  • Conventional ratings and rankings are often backward-looking and do not sufficiently incorporate issues of sustainability and impact. Use of metrics that incorporate sustainability and impact, as well as forward-looking efforts from companies, must become more widespread

7. Gains around positive (reinforcing) feedback loops

  • E.g., momentum on sustainability
  • Overall momentum on sustainability is building but insufficient to overcome pre-existing incentives and priorities, especially under stress

6. Structure of information flows

  • SFDR, TCFD, traditional financial reporting
  • Information on sustainability and disclosure is increasing, but too slowly, with too much focus on disclosure as an end in itself. Reporting initiatives such as TCFD and SFDR are important, but not as important as the actions being taken by companies to improve their sustainability
  • There is too little information consistency – e.g., net-zero commitments not translating into company accounts and projections in financial reporting

5. Rules of the system

  • Rules that govern the financial system
  • This is a key leverage point – not just the rules on disclosure, but the rules that govern the system itself, for example the extent to which transition plans, net-zero commitments etc. become mandated, and the extent to which the bodies of the international financial architecture embed responsibility for monitoring and overseeing the delivery of net zero
  • How can markets be harnessed for a smooth, orderly and just transition to net zero?

4. The power to self-evolve

  • This is hugely powerful – and underexploited. Participants in the financial system should advocate for its reform to make sure it has a long-term (sustainable) future

3. Goals of the system

  • Profit maximisation or profit optimisation? Extractive and exploitative or regenerative?
  • How to bring the economy back within planetary boundaries?

2. Mindset or paradigm

  • What is the system for? Do we serve the system, or does it serve us?
  • This is critical: we need mindset shifts to make all the other interventions work. Otherwise, the power of the paradigm makes the system hugely resistant to change and interventions will be insufficient to shift the course

1. Transcend paradigms

  • The power to see the paradigm itself, to be able to understand and change it
  • Global growth at all costs inexorably leads to civilisational collapse

Source: Aviva Investors, Donella Meadows, September 202217


  1. Donella Meadows, et al., ‘The limits to growth’, Potomac Associates, 1972
  2. Donella Meadows, et al., ‘Limits to growth: The 30-year update’, Chelsea Green, 2004
  3. Mark Versey, ‘Redefining stewardship: Why stakeholder capitalism needs to wake up’, Aviva Investors, August 31, 2022
  4. Donella Meadows, et al., ‘Limits to growth: The 30-year update’, Chelsea Green, 2004
  5. Jørgen Stig Nørgård, et al., ‘The History of The Limits to Growth’, The Solutions Journal, March 2010
  6. Donella Meadows, et al., ‘Limits to growth: The 30-year update’, Chelsea Green, 2004
  7. ‘Know your limits: An interview with Nafeez Ahmed’, Aviva Investors, August 29, 2022
  8. Rafael Laurenti, ‘The karma of products: exploring the causality of environmental pressure with causal loop diagram and environmental footprint’, May 2016
  9. Donella Meadows, et al., ‘Limits to growth: The 30-year update’, Chelsea Green, 2004
  10. Michael Jacobs, et al., ‘Beyond growth: Towards a new economic approach’, OECD, September 11, 2020
  11. David Peter Stroth, ‘Systems thinking for social change: A practical guide to solving complex problems, avoiding unintended consequences, and achieving lasting results’, Chelsea Green, 2015
  12. Steve Waygood, ‘A tragedy of perception: Fixing the ESG blind spots in business, finance and economics’, Aviva Investors, September 8, 2022
  13. Earth4All is as a vibrant collective of leading economic thinkers, scientists, and advocates, convened by The Club of Rome, the Potsdam Institute for Climate Impact Research, the Stockholm Resilience Centre and the Norwegian Business School
  14. Donella Meadows, ‘Leverage points: Places to intervene in a system’, The Donella Meadows Project, as of August 18, 2022
  15. AIQ Editorial Team, ‘Law and climate: Using the legal stick to accelerate change’, Aviva Investors, October 15, 2021
  16. ‘Planetary boundaries’, Stockholm Resilience Centre, Stockholm University, as of September 2022
  17. Donella Meadows, ‘Leverage points: Places to intervene in a system’, The Donella Meadows Project, as of August 18, 2022

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