On Funding Systems Change: How philanthropy can amplify its impact by strategically partnering with other forms of capital

Dominic Hofstetter
TransCap Initiative
8 min readOct 17, 2023


by Dominic Hofstetter and Hannah Paterson, TransCap Initiative
17 October 2023

Image Credit: Paris en Commun, via Fast Company

Philanthropy is going through a period of self-reflection. Many foundations are taking a hard look at the way they understand societal problems in search of more effective intervention strategies. One answer, we believe, is by partnering in a strategic, coordinated way with providers of other types of capital under a shared theory of systems change.

On the challenge of funding systems transformation

Most of the societal problems philanthropy cares about — poverty, racial discrimination, climate change, biodiversity loss, and other forms of social inequity and environmental degradation — are complex systemic challenges.

To make meaningful headway in addressing these issues, it is not enough to simply treat symptoms. We need deep, structural, and irreversible change in the social, political, environmental, and economic systems from which these issues emerge. In other words, we need systems transformation.

Systems transformation rarely results from the work of a single initiative, social enterprise, infrastructure project, or piece of regulation. Instead, it typically occurs through the combined effects of many interrelated shifts within a system, whereas these shifts may or may not be the result of intentionally aligned activity.

For instance, to decarbonize transportation systems, we need to install charging infrastructure for electric vehicles, develop shared mobility models, tax fossil fuels, expand public transportation, and educate consumers, amongst other things.

The multitude of things that need to happen within a system to trigger transformative effects tend to have different funding needs. Some interventions depend on non-repayable grants. Others can be financed with market-rate investment capital, perhaps with a pinch of catalytic capital for de-risking purposes. Still others require corporations to make advanced market commitments, insurers to launch new products, or the government to change how it procures goods and services, structures tax incentives, and designs subsidy programs.

So what is needed to enable a diverse set of actions is a funding architecture that matches different kinds of capital from different types of capital providers to different kinds of systemic interventions, as well as an orchestration mechanism that actively coordinates these capital flows in a way that leads to strategic coherence.

Why should foundations care about partnering with investors?

Philanthropy plays an important role in such a funding architecture. Through their grants, mission-related investments (MRI), and program-related investments (PRI), foundations can enable interventions that other players in the finance world are not well-positioned to support.

Foundations are also, arguably, the most knowledgeable funders when it comes to understanding the intricacies of societal issues. Many foundations have a deep and nuanced understanding of the structural problems at play because they have either been studying these issues intensely and/or because they work directly with front-line change-makers.

Lastly, and perhaps most importantly, the pots of money operating under an investment logic are orders of magnitude larger than those operating under a philanthropic logic. So by partnering with other providers of systems capital, foundations can leverage their resources and thus amplify their impact.

State of play

Partnerships between investors and foundations are not new — they have existed under the umbrella of “blended finance” for years. Nor are foundations strangers to strategic collaborations with others — approaches to “Collective Impact” are well established in the field of philanthropy. But what we are advocating for here is different.

Blended finance tends to be transaction-oriented and often focused on a single asset or investment vehicle. It also tends to engage philanthropy for the main purpose of improving the risk/return profile for private capital, assuming that the interests of “the market” are sacrosanct. Yet the kinds of collaborations we need are genuine partnerships: long-term, trust-based, multi-transactional, fair, and highly strategic.

Collective Impact work often checks all of these boxes but tends to involve grant funders only. Its scope of impact is therefore limited. In some sense, what we are advocating for is to combine the strategic approach of Collective Impact and the polycapital mindset of blended finance — but in a much more expansive way.

We are not alone in suggesting that the time has come for foundations to question the models and practices with which they operate. In 2016, Rockefeller Philanthropy Advisors launched the “Shifting Systems Initiative”, which encourages foundations to embrace the concept of systems change. A few years later, Ashoka started to explore the question of what it would take to fund systems change. And last year, the Joseph Rowntree Foundation launched a conference series called “Next Frontiers in Funding, Philanthropy and Investment”, whose first edition attracted more than 2000 sign-ups.

Indeed, some philanthropic endeavors already have a successful track record of strategically aligning with investment capital:

  • In 2014, the venture philanthropist Jesse Fink launched an initiative that would lead to the creation of ReFED, a non-profit dedicated to building a sustainable food system by bringing new philanthropic and investment capital — along with technology, business, and policy innovation — to the food waste challenge in the United States.
  • Lukas Walton’s Builders Vision has been providing grants and investment capital in a strategic manner to non-profits, research institutions, and entrepreneurs in support of healthy oceans.
  • Kresge Foundation’s multi-investor “Woodward Corridor Investment Fund” is blending market-rate investment capital, concessional capital (including from PRI), and grant capital to provide permanent financing for mixed-use projects in Detroit’s Midtown neighborhood.

We believe that these examples are instances of a new societal change practice that is starting to emerge. We call this practice “systemic investing”.

What are the critical success factors for foundations to adopt principles of systemic investing?

For any foundation, shifting toward a systemic investing paradigm will be a radical move. It would likely require a new understanding of its role, a change in strategy and governance, and greater risk tolerance. It would also require additional skills and capabilities, most notably from the fields of systems innovation and sustainable finance.

We are stressing this because “systems change” has been a buzzword in philanthropy for some time, but success stories about the adoption of systems practices are rare. We believe this is mainly because many foundations have been looking to be systemically impactful within their existing mindsets, governance structures, and processes.

For instance, many foundations dabbling in systems practices have continued to work in isolation, making grants to single projects or single social enterprises in the hopes that those would change systems on their own. They have not, however, moved to a collaborative, programmatic, long-term, multi-stakeholder, poly-capital, cross-sectoral approach.

And even when a foundation redesigns itself in service of systems change work, it will still have to overcome the formidable challenges that arise from the fact that giving and investing are two separate worlds with their very own values, motivations, vocabularies, social forums, and epistemological and ontological frameworks — just ask any foundation staff working on operationalizing MRIs and PRIs.

Through our work on systemic investing, we have come to understand what it might take for foundations to move toward a systemic investment paradigm:

  1. The first step is to adopt a systems mindset for the foundation’s core work. Once we start looking at societal problems through a systems lens, strategic partnerships with other forms of capital become an inevitable conclusion.
  2. The second step is to bring into play the analytical tools of systems thinking and complex systems science. Once we understand a societal issue through the frameworks of causal loop diagrams, actor maps, and leverage points, it becomes possible to develop a transformative theory of change, which enables the development of a funding architecture.
  3. The third step is to build the methodological, technological, and governance infrastructure needed to coordinate and orchestrate different capital providers. We need forums and protocols for these actors to come together, build trustful relationships, do collective sense-making, and agree and align on the actions that need to be funded.
  4. Finally, once different kinds of capital providers are ready to engage, there is a need for innovation around a set of questions related to legal arrangements, funding structures, compliance (particularly with financial markets regulation), risk and benefit sharing, reporting, and impact measurement.

All that said, foundations and philanthropists are only one set of actors in a systemic investing coalition, and such a coalition’s success will depend also on how other actors show up. For instance, private capital owners need to understand that they are no longer entitled to the kind of risk/return trade-offs that capital markets have been offering them over decades of extractive, unsustainable, and unjust economic practice and that the role of philanthropy is not purely to de-risk their participation in any public benefit work. And governments campaigning on low-tax austerity politics must stop looking to philanthropy to fund services that were once the responsibility of the public sector.

Call to action

So all providers of capital must move, and radically so. Yet foundations are particularly well-positioned to move first and play the role of lead convener in polycapital consortia. With their public-benefit mandates, foundations have the greatest incentives to work against mission drift and mediate between different private-interest actors if needed. They are also most likely to have the skills and experience to manage multi-stakeholder alliances, as many foundations are used to doing that as part of their core mission anyway.

For foundations eager to embark on the path of systemic investing, we recommend they start in an existing portfolio, geography, or program, exploring how a systemic funding paradigm could be brought to bear in a context they know well. This will allow them to familiarize themselves with the often abstract concepts behind systemic investing in a practical setting before adopting the practice more broadly.

Another option is to join an ongoing systemic investing prototype, one for which the infrastructure, a theory of change, and a consortium already exist. As other players needed for a funding architecture — impact investors, multilateral financial institutions, corporations, institutional investors, etc — are starting to go on their own systemic investing journeys, many will soon be looking to team up with foundations willing to join forces.

Systemic investing is not a panacea for systems change, and the community of systemic investment practice that is now emerging has a lot to learn about how some of its core ideas could be brought to bear to catalyze systems change.

In so doing, it can stand on the shoulders of an initial set of pioneers. These certainly include the philanthropic outfits mentioned above. But they also include societal actors with self-serving political objectives, such as Charles and David Koch, who are arguably the most successful systemic investors of our time. So we know that the strategic, synergistic deployment of multiple forms of capital can indeed shape the world we live in — we just need to start harnessing it for more progressive outcomes.



Dominic Hofstetter
TransCap Initiative

I write to inform, inspire, and trigger new strategies for tackling climate change.