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2021 | Book | 1. edition

Theories of Change

Change Leadership Tools, Models and Applications for Investing in Sustainable Development

Editor: Karen Wendt

Publisher: Springer International Publishing

Book Series : Sustainable Finance


About this book

Today, it has become strikingly obvious that companies no longer operate in an environment where only risk return and volatility describe the business environment. The business has to deal with volatility plus uncertainty, plus complexity and ambiguity (VUCA): that requires new qualities, competencies, frameworks; and it demands a new mind set to deal with the VUCA environment in investment, funding and financing. This book builds on a new megatrend beyond resilience, called anti-fragility. We have had the black swan (financial crisis) and the red swan (COVID) - the Bank for International Settlement is preparing for regenerative capitalism, block chain based analysis of financial streams and is aiming to prevent the “Green Swan” – the climate crisis to lead to the next lockdown. In the light of the UN 17 Sustainable Development Goals, what is required, is Theories of Change.

Written by experts working in the fields of sustainable finance, impact investing, development finance, carbon divesting, innovation, scaling finance, impact entrepreneurship, social stock exchanges, alternative currencies, Initial Coin Offerings (ICOs), ledger technologies, civil action, co-creation, impact management, deep learning and transformation leadership, the book begins by analysing existing Theories of Change frameworks from various disciplines and creating a new integrated model – the meta-framework. In turn, it presents insights on creating and using Theories of Change to redirect investment capital to sustainable companies while implementing the Sustainable Development Goals and the Paris Climate Agreement. Further, it discusses the perspective of planetary boundaries as defined by the Stockholm Resilience Institute, and investigates various aspects of systems, organizations, entrepreneurship, investment and finance that are closely tied to the mission ingrained in the Theory of Change. As it demonstrates, solutions that ensure the parity of profit, people and planet through dynamic change can effectively address the needs of entrepreneurs and business. By exploring these concepts and their application, the book helps create and shape new markets and opportunities.

Table of Contents

Correction to: When Transparency Clouds Rather Than Clarifies: A Closer Look at Transparency Bias Within ESG Scores
Ruben Feldman

Theories of Change: Defining the Research Agenda, Leadership and Change

Theory of Change: Defining the Research Agenda
Theories of change revisited. In the context of the Sustainable Development Goals (SDGs) and the challenges ahead, actors must think beyond an innovation strategy above and foremost about the impact they want to achieve. They need to realise that impact does not stem from innovation but from the scaling of innovation results. Thus the outcomes of their theory of change in terms of what their innovation should achieve becomes of key importance. There needs to be a paradigm shift: Today we move from problem solving concepts like environmental and social governance to creating a future based on the SDGs, which provide target knowledge. How does economy 3.0 look like in 2030, 2400 or 2050?
Karen Wendt
About Bridges and Goals: On the Art of Change Management as a Bridge to the Goals for a Sustainable World and a World of Sustainable Investing
This essay outlines a comprehensive perspective on how a transitional path to sustainable living can be fostered. To date, most decision-makers see this process predominantly as a management task, focusing on instruments like policy-making, management of technology-development, economic incentives, and strategic goal-setting. Within a change management perspective, the view is broader: In addition to management instruments processes of meaning construction and understanding, especially various practices of discourse, are considered to be essential. As such practices do not aim at specific predefined impacts they are often ignored as being fundamental for the success of change processes.
The essay outlines this guiding distinction between management and change approaches together with other fundamental insights of the social sciences and practitioners into the functioning of change processes. Aspects that are relevant from a change perspective in order to shape and promote a transition from investment banking to sustainability are highlighted. Comparisons are also being made between this sector and the transition to renewable energies.
The author proposes that the integration of change management know-how with knowledge about the management of political and economic developments as well as with technological knowledge is essential for leading this global change project to success.
Marcel Malmendier
Analysing the Credibility of Theories of Change
Simply put, and most unfortunately, current interpretations and applications of the Theory of Change concept have drifted so far from their origins as to render them useless. As inflammatory a statement as that may appear to be, it is also the single biggest and most annoying elephant in the development world’s room. And as the development world continues to shift focus from solely philanthropic and development finance funding to self-funded social enterprises and the very trendy impact investing, this elephant has grown well beyond the confines of that room.
Georgette Vun
Failed Theories of Change: Misperceptions About ESG Investment and Investment Efforts to Combat Climate Change
Sustainable Investing is joining the mainstream. This development is due to transformations in the financial system and regulatory landscape. This article explores the effectiveness and failure of new investor approaches to address sustainable investing.
Maximilian Horster
Y.1: The Biological Code for Evolutionary Transformation and Strategic Investment Decisions
Including the Svensca Handelsbanken Transformation Case
How does transformation occur in living systems? How do they manage to transform themselves in a direct, fast, safe and extremely energy efficient manner? What principles do they follow? And what can we learn about governing transformation as investors?
Coming from a rather medical standpoint, I strongly emphasize the ultimate need to have a clear understanding of healthy, living systems. Only then will we have the ability to govern the necessary radical transformations in economy, society and politics instead of only managing symptoms. It is not news that our traditional, reductionist, closed-system assumptions have led us into the muddle-headedness we experience today. Unfortunately, the same is true for our concepts of change and transformation. Learning from living systems, we learn how desperately wrong our current transformation models are: nature is able to undergo radical transformations, erasing its previous identity completely and rebuilding a new identity directly. Without dying. Without changing its genes. The cell has the information needed to actively transform itself into a radical new “Y.1” prototype.
The difficult point is that in nature there are no hybrid or dual solutions—it is either-or. You must DECIDE. If we truly seek to transform our world into a sustainable, evolutionary system through our investment strategy, we must be prepared to make brutal decisions. This article shall provide the Y.1 information code necessary for governing this transformation directly, fast, safe and efficiently. It also offers a new and comprehensive framework for positive impact investors, (real) green growth and sustainable finance.
By doing so, the gap between people, planet and profit is vanished. Our soul will be able to return and inspire our actions, endowing a feeling of grace and pleasure, while building a truly evolutionary and meaningful economy.
Michael Sonntag

Creating Global Frameworks

Towards a Unifying Framework of Impact Assessment in Impact Investing
This chapter highlights key challenges of impact assessment and argues for a unifying framework of impact assessment in impact investing. Given the current absence of a common language for what impact is, and the diversity in methodological approaches and methods for how impact may be assessed, a unifying framework would facilitate comparisons of performance of impact investment funds. Philanthropic organisations, foundations, investors and fund managers could benefit from such a unifying framework to assess, compare and aggregate impact across all investee firms, portfolios, and firm types in a spectrum of Social Purpose Organisations (SPOs) and over time. Furthermore, a unifying framework could provide contemporaneous assessment of a SPO’s double or multiple bottom lines, as well as evaluate and manage intended and unintended outcomes of an intervention. These are essential for managerial decision making, business model pivoting or impact scaling. We advocate social impact as that which derives from an impact value chain where we distinguish outputs from outcomes and impacts. We further propose that the Global Impact Investing Network (GIIN)’s characterisation of impact investing can provide a unifying framework for impact assessment along this impact value chain.
Swee-Sum Lam, Xiang Ru Amy Tan
Social Reporting Standard (SRS): Making Social Impact Visible
Social purpose organizations regularly assess and document the results of their work for a variety of stakeholders, such as funders or partners. However, so far, no standardized, generally accepted set of metrics or frameworks exists on how to derive a meaningful statement about the realized societal change. Consequently, social impact assessment remains a major obstacle and roadblock for the development of the social finance field. There is no consensus on what impact is, how it should be measured, or even the process by which metrics that matter could be developed. The Social Reporting Standard (SRS) has been developed roughly 10 years ago in Germany as one way and a first step to collect and account for information on social impact in a structured way and constitutes a standardized reporting tool with multiple possibilities for application.
Barbara Scheck
Clustering of Negative Criteria: A Pragmatic Approach for the Implementation of SRI
In the Status Quo, Socially Responsible Investment (SRI) is still a niche strategy. While many investors are drawn to the concept, there are hurdles that prevent them from actually applying it. In the literature, both the fear of an underperformance and the lack of easily accessible standards have been addressed at large. From consulting experience, we highlight another problem: Especially with negative screening, some criteria are apt to result in fruitless and fundamental discussions that have led to the abortion of many SRI implementation processes especially in smaller organizations. This results from the fact that negative or exclusion criteria are drawn from different contexts and origins and may not be applicable to all investors. We thus propose a simple but differentiated system of criteria that is linked to the Sustainable Development Goals and can be used without the requirement of SRI professionals, giving small institutional investors a pragmatic and easy access to SRI implementation.
Tobias Peylo, Bernhard Villhauer

Impact Investing

Improving Early Childhood Development in Namibia with Result Based Financing
High quality early childhood education programmes have been proven to create life-long positive learning outcomes among children—especially for those living in low income communities. In Namibia, many children from low-income families have limited access to high quality early education. To address this problem, we are exploring in this article the feasibility to support the launch of a Results Based Project financed through a Social Impact Bond that would provide high impact and quality education to preschool-aged children from low-income communities.
Daniel Gächter, Martin Suhr
An Analysis on Impact Measurement: How Do We Measure Impact?
There is no question that dedicated campaigners and volunteers are keen to achieve intended effects of a project or campaign. As a rule, they want to know what are the effects and indirect effects of their actions—the intentional, unintentional, short-term and long-term. Yet how does one determine these? What model is employed to measure effect or impact, what approach is used? To find answers to these questions is not easy. Particularly since almost all dedicated people are invariably under time constraints.
Kuno Roth
The Lessons of Microcredit
Microcredit is a prominent sector in the field of sustainable development finance. This article addresses the lessons learned in its rise and fall over thirty years. It examines the conceptual barriers as a result of its commercialisation, driven by the underlying neoliberal paradigm: the asymmetric debt relationship, the use of an arbitrary poverty line for the assessment of its performance, the absence of the inequality perspective, the unsubstantial belief in a ‘natural’ market equilibrium. A systemic failure of market forces lies beyond that paradigm, hence an alternative post Keynesian theory is illustrated by Mader’s application of Minsky’s financial instability hypothesis to the collapse of the regional microcredit market in India. It follows a brief overview of the feeble response of the microfinance industry to the distortions in the microcredit markets. In the final part, two alternative approaches to sustainable development finance are outlined, the universal basic income and the “Jubilee” type debt cancellation challenging usury and systemic overindebtedness. A thorough understanding of the lessons learned in microcredit opens new windows of opportunities to achieve a meaningful theory of change in sustainable development finance.
Peter W. Heller
Impact Investing Practice Report: Impact Analysis and Impact Reporting at BonVenture
Impact investing is on the verge of becoming mainstream. Yet, due to an “impactwashing” wave of conventional investment practices it is evermore crucial for impact investors to differentiate themselves through transparent and well-grounded impact measurement and impact reporting practices. As pioneer in financing social ventures, BonVenture successfully demonstrated the integration of social and economic goals for impact investments. This article seeks to provide insights on the impact analysis and impact reporting process conducted at BonVenture to foster transparency but also to promote the conduct of profound impact investing practices.
Erwin Stahl, Paul Garte

Quantitative Analysis in Investing

When Transparency Clouds Rather Than Clarifies: A Closer Look at Transparency Bias Within ESG Scores
As more attention is paid to ESG and more data vendors enter the ESG ratings market, the importance of data quality cannot be understated. ESG scores and data are increasingly being integrated into investment decisions in order to enhance the sustainability profile as well as improve portfolio performance. However, ESG data is not immune to bias and although data transparency and disclosures seem to be a virtuous aim of and valuable indicator for sustainability, it too can be a source of bias. As discussed here, this bias can lead to over- or underestimating the true sustainability performance of companies, reducing the reliability of ESG scores.
Using regressions and other statistical methods on standard ESG data sets of more than 5000 publicly-listed firms, this paper demonstrates the clear presence of transparency bias within ESG scores, how, if uncontrolled, it leads to erroneous sustainability scores, as well as explains how RobecoSAM’s Smart ESG methodology can be used to effectively neutralize systematic transparency bias in order to distill idiosyncratic ESG scores that are more reflective of a company’s true sustainability performance. Armed with refined Smart ESG scores, investors can make better informed investment decisions and increase the predictive power of ESG data for a portfolio’s sustainability, risk and return performance.
Ruben Feldman
Comprehensive Simulation Meta Model for Transition Planning and Decision Analysis with Sustainable Impact
A comprehensive simulation meta model for transition planning and decision analysis is proposed and outlined. This model is designed to provide insight on the effects of a proposed agenda ahead of time, and to support an optimization of means and resources available to decision makers in governments, organizations, businesses, or to private persons to reach their goals across different time horizons and considering different quantities of relevance.
The model supports multiple use cases. The system of interest, the decision makers, the nature of the decisions to be made, and the quantities relevant to the decision makers do not need to be defined a priori. The results of the simulation can be aggregated onto diverse observables relevant for business, economy, society, and environment.
The meta model is modular, combining existing domain-specific models into one framework. It will gradually be extended to cover all domains and scales relevant for sustainable business, sustainable finance, and sustainable development.
The article outlines the approach and gives examples of applications. It also shows how the model will gradually be developed during its application, allowing a targeted and fast application while allowing continuous learning and improvement.
Salomon Billeter


Banking 4.0: Digital Ecosystems and Super-Apps
Banking 4.0 is characterised by digital innovations, fusing the physical, artificial, and biological worlds, affecting societies, industries, and companies with ever higher speed and intensity. In the process to a new world order with new competitive forces and uncertainty, where goals are continually changing, and resources must be flexibly reorganised, there is no room for traditional ways of strategic thinking. With old management concepts, linear value chains, and rigid and closed organisational structures, established firms will be the losers. This article explains why the banking industry is ripe for disruption. It introduces a conceptual framework based on a case study research of Chinese juggernauts, including value constellations, platform business models and super-apps. Our journey from the industrial economy to the digital era opens up new vistas on how to create and capture value for businesses and clients of the next generation. We describe why modern leaders must embrace change, learn from Asia, and develop strategies through the lens of the ecosystem theory. Digital ecosystems focus on clients and data and consolidate interconnected goods and services. To achieve sustainable financial growth, we suggest an agile management approach that takes the digital transformation as a chance and builds upon partnerships to connect with diverse actors—technologically, socially, and culturally.
Daniel Fasnacht
Orchestrating Value Co-Creation in Business Ecosystems
Shifting from an Idiocentric Towards an Allocentric Perspective on the Business Model Concept
In increasingly digital enabled business environments, value is generated through information sharing and manipulation among interdependent social and commercial actors operating in business ecosystems. With the aim to collaboratively create and capture value in this structural context, a company needs to be effective and efficient in orchestrating resources rather than acquiring and independently owning them. This implies that a company has to move from a purely subjective (idiocentric) perception on value creation and value capturing towards a more intersubjective (allocentric) one. Leveraging business ecosystems from a service-dominant perspective, this chapter illustrates how successful companies achieve this by applying an allocentric perspective on their business models. By building their business models upon a shared value purpose that is materialized through a service resulting from value co-creation among complementary actors including the beneficiary, it is shown how these companies successfully leverage the opportunities resulting from innovative digital technologies. Thus, this article emphasizes the shift from an idiocentric perspective on business models where value creation is perceived as a result of firm self-centered activities. Towards an allocentric perspective, where value occurs when heterogeneous social and business partners work together toward mutual benefits, the key being the orchestration of resources between these parties.
Marc Burkhalter, Christian Betz, Stefanie Auge-Dickhut, Reinhard Jung

Blockchain, Chryptoeconomics and Sustainability

Change Through Crypto-Economics
Blockchains incentivize the network participants to stick to the rules of the network by creating economic benefits to them. That mechanism drives change on the level of each network participant through a pure voluntary opt in mechanism, and it changes how networks are operated. On the latter, centralized networks are transformed into open markets. In particular, current financial and energy networks can be replaced by networks run by communities resulting in the emergence of sustainable societies.
Michal Natora
Blockchain and Sustainable Development Goals: From Blue Skies Estimates of Impact to Bottom-Up Essentials
This chapter takes a “Theory of Change” approach in examining the opportunities and challenges of blockchain in sustainable development and social impact. It addresses the manner in which both the discourse and the use cases of blockchain and initiatives related to sustainable development and social impact have evolved, from the discourse of the Pillar of the 4th Industrial Revolution and the effects of the silicon valley “style” ventures, the overestimation of “market opportunity”, the conflation and confounding of different of types of blockchain initiatives and offerings combined with key assumptions about readiness and capacity not only of the technological elements—as blockchain as a “ready service”—but also within the social impact and sustainable development landscape. It then examines key use cases and loops back to address the key needs and barriers for scaling up (As opposed to the issues surrounding technical transactional scaling issues related to the need for blockchain platforms to process hundreds of thousands of transactions per second as well as the increased need for miners, developers, businesses and other stakeholders) of blockchain solutions and impact in sustainable development.
Katherine A. Foster, Deanna MacDonald, Marc Johnson
The Tokenization of Assets: Using Blockchains for Equity Crowdfunding
In this chapter, we present tokenization of equity crowdfunding on a Blockchain as a possible approach to ease access to capital for startups. We propose a categorization of token standards into UTXO-based, layer-based and smart contract-based tokens. In a second step, we analyze the advantages that tokenization can bring, such as cryptographically secured ownership, programmability of assets, access to the Blockchain-ecosystem, enhanced divisibility of shares as well as the formation of a well-functioning secondary market. Tokenization allows to decouple the ledger of assets from the crowdfunding platform, thus lowering the cost of secondary market trading and the intermediary’s power. We conclude by mentioning several drawbacks including information asymmetries between investors and campaign creators, regulatory issues and high energy intensity of Proof-of-Work-secured Blockchains.
Jakob Roth, Fabian Schär, Aljoscha Schöpfer
Blockchain and the Evolution of  Information Society
Today we are witnessing a multi-layered metamorphosis of our culture and society, accelerated by the technological developments of the last decades. The main drivers of this metamorphosis are information and interconnectivity. Here we will try to analyze this transformation from a holistic perspective.
Mihai Alisie
Cryptography Leads the Next Wave of Societal Change
Blockchain technology has already shifted our thinking towards a different way of organizing and collaborating. Cryptography in peer-to-peer immutable networks, has already led to experimentation in alternative Trust mechanisms in several areas of our societal structure. Change is given, even though the most dominant technology of such networks has not yet been decided. The direction of change is towards self-sovereign identity and being your own bank.
Efi Pylarinou
Machine Learning and Finance
The article provides a short overview of recent developments driven by the application of Artificial Intelligence (AI) or, more specifically, Machine Learning (ML) in the financial sector. The focus is on the practical consequences of ML use, especially at Pretrade analytics, Portfolio Management or in the field of service.
Bernhard Villhauer

SDG Topic

The Gender Investment Gap
We are in the twenty-first century, and live in a technologically very advanced, culturally sophisticated and globalized world. In the world of business and investment however, half of humanity still doesn’t receive their fair share of trust and financial backing when pitching their business proposals. Still, men are preferred when it comes to VC and other funding. Research shows that there is an immense gender investment gap, still and again placing women at a backseat. This chapter takes a close look at that gap, exploring the historic dimension behind it, and diving into gender roles, the role of perception and of our economic system rewarding and incentivizing “male” qualities. It outlines good reasons to invest in women and offers recommendations for best practices to close the gender investment gap. Not only as an act of justice by giving women a fair chance and a greater share of market and power—it’s a change in mindset that could well determine our future quality of life or even survival on this planet.
Ulrike Glatz, Siddhartha Sharma
The Era of New Leadership
This chapter pretends to inspire the reader to consciously balance and honour the feminine and masculine energies as described by Mariana Bozesan (The making of a consciousness leader in business: An integral approach. SageEra, 2010) and to reach number 5 of the Sustainable Development Goals which aims the achievement of gender equality and empowerment of all women and girls, also in business. Because values traditionally associated with women create more effective leaders and organizational strategies in today’s society. Traits associated with women—flexibility, empathy, and honesty—underpin career mobility and personal fulfilment. Finally, feminine traits help human beings adapt seamlessly and effectively to today’s changes. A few stories will support these assumptions. According to the CEO of SUPRACAFÉ: “From our experience, it is clear that resources managed by women have a greater and more positive impact on families, education, child nutrition and health. Also, the empowerment of women makes them less vulnerable to gender-based violence.”
Katharina Miller
Social Enterprises: Investment in a Sustainable Social Development with Added Value
When setting up the first Social Entrepreneurship Venture Capital Funds in Austria, the institutional investor fair-finance had to find a suitable vehicle for this new form of investment in social enterprises. A valid exit strategy via a social bond ensures the fund is suitable for long-term investors. The declared aim of this initiative, launched jointly with the SME & industry stakeholder group “Senat der Wirtschaft”, is to increase the number of social entrepreneurs and thus also the number of social business cases in Austria and Germany. Investors placing social impact above profit maximisation are to be given the opportunity to invest meaningfully in companies offering a solution for overcoming social challenges—and in return receive a socially sustainable yield.
Markus Zeilinger

Climate Change

Domestic Heating and China’s Sustainable Energy Goals
With proprietary datasets we examine China’s domestic heating energy consumptions between 2010 and 2015. We find that, together with the upward trend in the country’s total domestic heating energy consumption, electricity and natural gas fast replace coal as major sources of energy. Total domestic heating energy consumption, coal and electricity consumptions are negatively related to the households’ disposable income. Steam heating capacity, an energy efficiency indicator, is negatively related to total domestic heating energy consumption. In addition, weather conditions are also key factors towards domestic heating energy consumption in China.
Xin Xu, Lei Xu, Laubie Li
Sustainable Energy Investment in Australia
Securing a stable and reliable energy supply future is a major challenge in Australia in 2018. Ageing energy assets and regulatory uncertainty fuelled by concerns over global climate change and environmental sustainability create significant hurdles to future investment. Resource providers are becoming increasingly concerned with investment sustainability and demand performance metrics beyond profit extending to governance, environmental and social measures. This study develops a Sustainable Development Goals (SDG) Index most relevant to the energy sector and measures the SDG performance of the Australian retail energy market. SDG index scores provide a signal to resource providers including investors, creditors, regulators and the community about the sustainability of energy sector firms.
Will Mackay, Lei Xu, Greg Meredith
The Money Pipeline: The Role of Finance in the Climate Emergency
Climate change is real. It’s happening, now. But if the constant flood of record-setting catastrophes in your newsfeed isn’t enough to get your attention, it should also be made clear that every foundation stone of the global economy is also at imminent risk of being washed away. The science is clear: to avoid disastrous, runaway climate change, we must prevent the Earth’s temperature from rising more than 1.5 °C above pre-industrial levels. Achieving that means emissions must be reduced sharply within the next eleven years, and must reach net zero no later than 2050. We urgently need to bring the fossil fuel era to an end. And with many governments around the world being lobbied, coerced, convinced, or corrupted into continuing with business as usual or outright climate change denial, it is more important than ever that the finance industry step into a position of global leadership.
Katya Wisniewski
Moving the Topic of Climate Change from Politics to Economics
Rather than constantly reacting to extreme weather conditions brought on, in the most part by the effects of climate change, is it not now time for the insurance industry to seize the opportunity and take a proactive stance for the greater good? Modern availability of data, innovative analytics products and frankly more importantly a moral obligation, can drive real change into society. With the development of new underwriting coupled with a better understanding of the connected risks, the industry can drive real change. Insuring and managing the risk of those specific industries in vulnerable regions that have far reaching effects on global supply chains and the refusal of some insurers and reinsurers like Allianz not to cover new coal based projects are merely the tip of the metaphorical melting iceberg.
Shruthi Rao, Sandeep Chandur
Theories of Change
Karen Wendt
Copyright Year
Springer International Publishing
Electronic ISBN
Print ISBN