Summary of the book "21st Century Investing" - By William Burckart and Steven D. Lydenberg

Key concepts in this book:

1. Investing at the system level strengthens society's social, financial, and environmental systems.
2. Your investments should be based on consensus, relevance, and efficiency.
3. Bonds can assist in the funding of systemic reforms.
4. Portfolio creation and investment beliefs declarations should be considered by system-level investors.
5. Investors can utilize the establishing of criteria to compel reform.
6. Always challenge financial managers' actions.

Who can benefit the most from this book:

• Investors wondering how to square profitability with social justice.
• Anyone curious about the future of investment strategy.
• Savers hoping to future-proof their investments in an increasingly uncertain world.

What am I getting out of it? Learn to invest in ways that benefit the world rather than harm it.

Do you recall when "Greed is good" was the rallying cry of investors all around the world? It wasn't that long ago – only a few decades, to be precise. However, as the social and environmental consequences of unbridled greed have become all too apparent, the cultural atmosphere has shifted. Furthermore, the physical climate has shifted.

This is where the summary come into play. They're a how-to manual for investors who want to change things for the better and for the long haul.

Divesting fossil fuels and pursuing do-no-harm policies aren't enough. Including a few socially responsible companies in your portfolio isn't enough. The world's problems can't be solved individually; they must be addressed as systems, as this summary demonstrates.

• You'll learn why sustainable investment isn't enough.
• How to identify which issues to focus on.
• And how divestment helped to end apartheid in South Africa in this summary.

1. Investing at the system level strengthens society's social, financial, and environmental systems.

Close your eyes for a moment and try to picture a typical investor. What kind of person do you think you're seeing?

Don't worry about things like the investor's physical attractiveness. Instead, consider whether the person you're picturing has a strong sense of social responsibility. Is this typical investor charitable and civic-minded? Are they kind and dedicated to making the world a better place?

Regrettably, the answer is most likely no. You're not alone if you expected the investor to be self-centred, greedy, and only interested in making a quick buck. Many investors have matched that caricature for far too long – which is where system-level investment comes in.

The main point is this: Investing at the system level strengthens society's social, financial, and environmental systems.

Too many investors have self-serving and short-sighted objectives. They invest to increase their own profits – and, if they manage a fund, the profits of their clients.

Sure, these investors follow the law. But, as far as they're concerned, their responsibilities to the rest of the world end there. Investors at the system level, on the other hand, have a different perspective. They invest in ways to build the mechanisms that make human life sustainable and equitable, rather than focusing on short-term financial advantages.

That makes sense if this sounds like a good long-term investment. Sustainable investing and system-level investing have certain similarities: both include clear environmental and social concerns, and both suggest that generating a rapid profit isn't always the most essential thing.

System-level investors, on the other hand, go much further. They aren't always funded managers or high-powered Chief Financial Officers; a casual hobby investor might also be a system-level investor. But what sets them apart from other sustainability investors is that they are more active, targeted, and persistent - they don't merely buy shares in renewable energy firms and call it a day.

Investors at the systemic level advocate for new government rules to force corporations to comply. They advocate for more progressive industry norms. They also work together with other like-minded investors to effect change. In a nutshell, they seek systemic answers.

Short-term profits at the expense of essential systems such as health care, consumer safety, and climatic stability aren't advantages at all. They are, in reality, significant losses. System-level investors understand this, therefore they invest in ways that strengthen and resiliency our core systems. In the following concept, we'll look at how they do it.

2. Your investments should be based on consensus, relevance, and efficiency.

It's fine to claim you want to enhance the world's most critical systems - but are you willing to put your money where your mouth is? That's another story altogether. The issue isn't only that people grow nervous when their money is on the line. There's also a more fundamental problem: many of us have no idea where to begin.

The issue about systems is that they're huge by definition. They're also intricate and interrelated because they're systems. So, as an investor, how do you go about trying to improve something so big and complicated? What factors should you consider when deciding where to put your money?

It's difficult to go wrong if you keep to three fundamental requirements.

The main point is this: Your investments should be based on consensus, relevance, and efficiency.

The first rule to remember is what the writers refer to as consensus. It's a rather simple process. You can state that the topic you're looking at fulfils the consensus criterion if there's widespread agreement that it's valid and relevant. For example, there is widespread agreement that improving access to health care around the world is a good goal — in other words, that it is critical.

The relevance principle is the second principle. This is primarily a financial consideration; an issue is considered relevant if it has the potential to have a major impact on a variety of investments. It's not enough for a problem to affect just one sort of investment, such as real estate; it needs to affect a wide range of industries and assets.

Finally, there's efficiency. This notion boils down to determining how much power you, as an investor, have over the situation at hand. How confident are you in your ability to effect change? Are there any other like-minded investors with whom you could collaborate? Is the general population aware of the problem – and willing to assist? To summarize, don't pick a hopeless cause; instead, pick battles you can win.

You'll be well on your way to identifying the systemic challenges on which you can, and should, focus your investments if you follow these three guiding principles: consensus, relevance, and effectiveness.

3. Bonds can assist in the funding of systemic reforms.

We discussed the importance of assets in the previous chapter. We previously stated that a systemic issue could be relevant to your investing plan if it has the potential to harm assets other than real estate and equities.

Assets, on the other hand, aren't only valuable items that can be harmed by systemic changes. We may also use assets to try to make critical systems more robust and avoid some of the hazards that threaten them.

Venture capital, real estate, equities, bonds, private equity, and cash are all examples of assets. In this flash, we'll concentrate on just one — a form of asset that has the potential to do a lot of good for systems and the people who use them.

In other words, we'll concentrate on bonds in this concept.

The main point here is that bonds can be used to help fund systemic reforms.

A bond is a debt to a government or an entity that can be traded among investors, as you may know.

Bonds are straightforward. An organization can raise funds by selling bonds instead of resorting to a bank. It pledges to make periodical interest payments as well as repay the whole amount of the borrowing when the bond matures.

Bonds are popular among traditional investors because they are a relatively safe kind of investment and can help to balance a portfolio's risk profile. Bonds appeal to sustainable investors because they allow them to assist nongovernmental organizations (NGOs) and contribute funding to the construction of critical infrastructures such as transportation, sanitation, hospitals, and schools.

These advantages naturally appeal to system-level investors, who take things a step further. Systemic investors are looking to new types of bonds, such as the green bonds that financial institutions started issuing in 2007, to fund actual systemic change. Environmental projects such as sustainable transportation, water treatment, and renewable energy are funded by these bonds.

Green bonds, in fact, paved the way for COVID bonds, a special sort of bond meant to help a country recover from the consequences of the global coronavirus pandemic.

4. Portfolio creation and investment beliefs declarations should be considered by system-level investors.

So far, we've looked at some of the rules that system-level investors should follow, as well as how bonds might help fund systemic growth. What about the tools employed by traditional investors? Is it possible to repurpose them to effect systemic change?

They can, as evidenced by this concept. We'll look at how a system-level investor can employ portfolio creation and investment beliefs statements in particular.

Portfolio creation refers to the process of selecting certain investments that will be combined to form your portfolio. Investment beliefs statements are a form of document used by financial firms to explain why they make certain investments.

Both concepts are recognizable to even the most seasoned investor, but they provide system-level investors with some distinct advantages.

The main takeaway is that system-level investors should pay close attention to portfolio construction and investment conviction statements.

An investment beliefs statement (IBS), as previously said, gives out a financial institution's understanding of markets and their position within them. In a nutshell, it explains the institution's investment philosophy.

This is good news for system-level investors. First and foremost, an individual investor might utilize an institution's IBS to determine whether her values are compatible with the investment decisions that the institution is likely to undertake. Is this institution, for example, going to invest in fossil fuels? Or does it demonstrate a commitment to renewable energy sources?

CalPERS, a California-based retirement fund, does exactly that. "Responsible environmental measures are vital to risk management," according to its IBS. It pledges to "make good use of limited resources" and "address systemic concerns like climate change." These are the kinds of claims a system-level investor should be looking out for.

What about portfolio construction, the other aspect of traditional investing that we addressed at the outset? Well, it usually entails risk management, which is selecting investments that are unlikely to depreciate in value. Systemic risks should also be considered by a system-level investor in this study. Given the dangers that fossil fuels represent to our ecosystem, a system-level investor could wonder if even the most stable oil business is truly "risk-free."

5. Investors can utilize the establishing of criteria to compel reform.

The majority of investors aren't CEOs. They are not allowed to serve on the boards of international corporations. They have limited authority; if they want to affect systemic change, they must usually do so indirectly.

The problem is figuring out how to do it. As previously said, system-level investors must band together. They must come together around a shared cause, agree on a comprehensive plan of action, and work together to carry it out.

You may recall that one of the characteristics that these investors assess when deciding which issues to address is efficacy. They must consider how probable it is that they will be successful in bolstering a specific system – and averting the threats that threaten its smooth operation.

To accurately answer that question, system-level investors must first assess the methods at their disposal for influencing the system. Setting standards is one of the most successful methods.

The main point here is that investors can utilize standard-setting to force reform.

Consider Reverend Leon Sullivan, a civil-rights activist who led a series of anti-racist activities in the second part of the twentieth century. Setting standards was one of his preferred techniques for combating discrimination.

The activity of divesting from firms, sectors, and governments that pursue harmful and undesired policies is known as standards-setting. The goal is to deprive them of capital and support, forcing them to modify their methods — for the system's overall benefit.

Leon Sullivan went ahead and did exactly that. Complaints about GM's largely whiteboard of directors led to his selection as the company's first Black director in 1971. Within a few years, he was focused on bringing about systemic change in South Africa, where apartheid was still in effect.

GM was one of the largest employers of Black South Africans at the time. Disturbed by the inequality they faced, Sullivan devised the Sullivan Principles, a basic list of demands intended to ensure that Black employees were treated equally and with respect.

Anti-apartheid investors refused to do business with companies that did not adhere to the Sullivan Principles, and several significant US public pension funds avoided investing in companies that followed apartheid regulations.

It was campaigns like this that eventually compelled South Africa to repeal its racial segregation regime. The success of the Sullivan Principles in the anti-apartheid struggle demonstrates that imposing standards may be successful provided investors offer a united front.

6. Always challenge financial managers' actions.

If you've been paying attention to the news recently, you'll notice that it's becoming increasingly difficult to ignore the devastation that unrestrained, short-term profiteering is wreaking on our societies and our planet.

It's beneficial in many respects that we're being compelled to act. It's also a good thing that financial institutions are catching on and adapting their goods and services to appeal to socially conscious investors.

However, the unexpected popularity of sustainable investing comes with its own set of issues. For one thing, because these causes are so popular, it can be difficult to tell who truly cares and who is simply riding the wave of public enthusiasm.

The main takeaway is to always challenge financial managers' actions.

When it comes to assessing the intentions of financial managers, there are a few key things to keep in mind. The first thing you should look for is whether or not management has a clear and concise policy on systemic difficulties.

This can manifest itself in a variety of ways. It should ideally be similar to the earlier investment beliefs declarations, although it doesn't have to be that straightforward. Any form of on-the-record public declaration – preferably one that is clear, concrete, and precise – can be used to demonstrate a real commitment to system-level investing.

However, it is your responsibility to evaluate these claims critically. Use your common sense. Is the manager in question behaving in conformity with her stated policies? Is she responsible for ensuring that her organization's impact is tracked and reported on? If she doesn't, be wary: her seeming commitment to systemic investing could just be lip service.

Finally, simply aiming for systemic change isn't enough for a financial manager to be worthwhile. She must be able to demonstrate a track record of actual success. Has the manager had a positive impact on the system? Has she collaborated on viable solutions with her peers, NGOs, and other stakeholders?

If you answered yes to those questions, you might have a winner on your hands.

The essential takeaway from this summary is that investment techniques that seek to earn a quick buck at the expense of society and the environment have outlived their usefulness. Today's investors must identify ways to enhance key systems rather than invest at their expense of. This can be accomplished by identifying worthwhile challenges to address, selecting the appropriate assets, and utilizing portfolio architecture and investment beliefs statements. Furthermore, you can utilize standards-setting to compel businesses to embrace higher norms, all while focusing on self-described "responsible" financial managers.