It sounds appealing: By allocating their capital wisely, investors with their hearts in the right place can generate measurable, positive social and environmental impact while also achieving financial returns comparable to those available in conventional markets.
But does that hypothesis stand up to scrutiny?
Not if you ask systems thinker Steve Waddell. Impact investing cannot deliver the kind of transformation the world needs.
For decades, Steve Waddell has worked on systems change across sectors – from civil society and foundations to businesses and international organizations. Today, he is one of the driving forces behind the initiative Bounce Beyond, which aims to develop “more life-centered and regenerative economies.”
“We need to fundamentally engage with the structures and processes that define our societies,” says Steve Waddell.
He adds that impact investing can be part of that.
“But the idea that impact investing on its own can transform systems – I just don’t see that,” he says.
In practice, this leaves impact investors facing a choice, according to Waddell:
They can accept the premises of the current financial system and continue investing as they do today – but then they must also accept that they are only creating incremental change.
Or they must recognize the need to invest in fundamentally different ways – and accept lower returns in exchange for structural transformation.
“The expectation of achieving both high returns and large-scale change at the same time is what I call having your hand in the cookie jar,” says Steve Waddell.
“You have to ask yourself whether you are actually supporting the transformation you believe is necessary – or whether you are simply comfortable extending the life of the current system. If it’s the latter, you might as well keep your hand in the cookie jar.”
Impact investing is part of something bigger
Steve Waddell does not reject impact investing as such. What he rejects is the idea that impact investing on its own can drive the kind of transformation required to address major societal challenges.
Instead, he argues that impact investing only makes sense as one component within a much larger system.
“You can be part of transforming the financial system and have a transformative impact together with others. But the individual approach doesn’t work particularly well,” says Steve Waddell.
This marks a fundamental shift.
Where the impact field often focuses on investments, funds, and individual actors, Steve Waddell shifts the focus to the relationships and structures in which they operate. It is not the individual investment that creates change – it is the system around it.
The myth of the “heroic” investor
Steve Waddell is critical of the implicit narrative underpinning much of impact investing: that skilled investors can identify the right solutions and scale them.
But the idea of a “Rambo investor” who can single-handedly transform a system breaks down as soon as one looks at how systems actually change.
“There are so many moving parts. It is unrealistic to expect a single actor to manage that level of complexity alone,” he says.
Systems are shaped by the interaction of many actors: policymakers, businesses, civil society, institutions, and citizens. They evolve through negotiation, shifts in power, and new relationships – not through isolated investments.
The financial logic of identifying an opportunity and investing in it therefore captures only part of the picture.
Why systems change is so difficult
Waddell points to four fundamental characteristics of real systems change that help explain why impact investing often falls short:
- Scale: Change requires coordinated efforts across entire systems – not isolated projects
- Complexity: Systems consist of many interdependent relationships that cannot be centrally controlled
- Inner change: Transformation is not only about structures, but also about mindsets, values, and power
- Time: Real change takes decades – far beyond most investment horizons
Taken together, these factors challenge the idea that investments alone can “solve” complex societal problems.
Where investors engage – and where they don’t
Another factor limiting the transformative potential of impact investing is where capital actually flows.
According to Steve Waddell, systems change typically unfolds in three phases:
- Experimentation – where new solutions are developed and tested
- System design – where institutions, regulation, and infrastructure are built
- Scaling – where solutions are expanded
Impact investors primarily operate in the final phase, where business models are clearer and risk is more manageable.
But the first two phases – which are essential for systemic change – are often underfunded.
“Large amounts of time and money go into experimenting with new solutions. And once results begin to emerge, you move into system design. These two phases are massively underfunded,” says Steve Waddell.
The result is a structural imbalance: capital flows to solutions that are already ready to scale – but not to the work that makes them possible in the first place.
When impact investing reproduces the system
But the problem goes even further, according to Steve Waddell.
Not only does impact investing often fall short of driving systemic change – in some cases, it may actually reproduce and sustain the existing system.
One key reason is that many impact investors come from traditional finance and bring its logic with them.
“The ways people have made money in the traditional system are part of the reason we have the problems we face,” says Steve Waddell.
This creates a fundamental tension.
Strategies designed to generate financial returns are not necessarily capable of delivering social and environmental transformation.
Unless investors consciously address that tension, they risk reinforcing the very system they are trying to change.
“If you start from the position that the conventional financial system is itself a driver of unsustainability and inequality, then you have to conclude that you cannot invest within that same system. You have to help create a different one,” he says.
From investments to systems
If the goal is real transformation, Waddell argues, it requires a shift in focus – from individual investments to building systems.
This includes:
- working across different types of capital – public, philanthropic, and private
- engaging in meaningful relationships with the communities involved
- developing new forms of collaboration and intermediary structures
- and seeing finance as just one of several drivers of change
In this approach, the role of the investor changes.
“As an investor, part of your role is to act as a weaver – connecting different types of capital and building relationships between the actors needed to support transformation,” says Steve Waddell.
Capital does not become less important – but its role changes.
A field at a crossroads
Impact Insider reached out to both the Global Impact Investing Network (GIIN) and one of the field’s leading figures, Sir Ronald Cohen, for comment, but neither responded before the deadline.
That does not change the central question.
Impact investing has grown significantly in recent years. More funds, more investors, and more capital have been mobilized with the ambition of generating both returns and impact.
But growth is not the same as transformation.
If Waddell is right, the key question is not how much capital is deployed – but how, and within what kind of system.
Is impact investing a way to improve the existing system?
Or to create a new one?
Or does it risk, in practice, extending the life of the system it seeks to change?
“If impact investing does not change the power structures and privileges tied to money, then it simply continues the current system. It does not make a real difference,” says Steve Waddell.
The questions he – and other systems thinkers – raise are not ones the field can continue to postpone.
