Stewardship is the responsible management of investments to enhance long-term financial wellbeing while advancing environmental, social and economic sustainability. For stewardship to contribute meaningfully to a sustainable future, we must recognise it as a complex system extending far beyond the technicalities of investors’ rights and how they privately and publicly influence investees. Only by doing so can we close the significant gap that the 2025 World Benchmarking Alliance Financial System Benchmark identified: while 60% of major financial institutions assign formal responsibility for sustainability, only 1% maintain evidence-based strategies linking their activities to real-world impact.

This article applies a systems lens to stewardship, revealing how two structural factors—industry intermediation and compressed time horizons—undermine sustainability outcomes. It draws on research that emerged out of a curiosity about the effectiveness of stewardship and sustainable finance on real-world outcomes and is the second article in a three-part series.

The first article highlighted that 90% of any system, including the stewardship system, remains invisible yet fundamentally influences what happens in practice. The third article introduces systems-informed stewardship.

Investors as stewards obscures a heavily intermediated industry

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Focusing on investor-investee relations obscures how multilayered intermediary networks fundamentally shape investment processes—and consequently sustainability outcomes. Individual investors often operate several steps removed from the companies where their money flows, with asset managers, platforms, exchanges, dealer groups, financial advisers and research houses operating between them. Consider the 2013 OECD report: the Californian Public Employees Retirement System, then managing US$237 billion in assets (equities, securities and funds), maintained a network of 300 asset managers and firms alongside multiple proxy adviser firms, data providers, auditors, consultancy, legal and brokerage firms. Or Australia’s largest superannuation fund, AustralianSuper, which manages 58% of its assets under management internally and outsources the rest to 80 managers—only three firms manage 5% or more.

This fragmentation dilutes accountability. When sustainability failures occur, responsibility disperses across the network, making it nearly impossible to identify where stewardship broke down. Even where other actors’ roles are recognised, such as in the UK stewardship code that includes proxy voting and engagement service providers and investment consultants as signatories, the focus remains on bilateral relationships between investors and companies or investors and asset managers rather than the pattern of dynamic network effects.

This structural complexity is further impacted by other factors like the effects of passive management, greater attention on public markets than private markets, and deeply embedded temporal constraints.

How temporal norms influence policies and practices and vice versa

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A decade ago, Mark Carney, then leading the Bank of England, described the tragedy of the horizons. Though the sector widely acknowledges how short-termism damages outcomes, the finance sector’s conception of long-term remains critically short. The average holding period hovers around five years, even for investors who self-identify as long-term. Meanwhile, business longevity has also declined substantially. Contrast this with other temporal measures: the average human lifespan reaches 70 years, biodiversity requires 120 years to recover following deforestation, and addressing environmental and social degradation takes decades of effort even after we have evidence (see Box 1).

Box 1: Are we improving at identifying and addressing harmful practices?

Plastics pollution: First developed in the 1860s, the mass production of plastics did not emerge until the 1950s, spurred on by innovations in the 1940s which, driven by WWII prioritising metals such as copper and aluminium. By the 1960s, concerns emerged about the impact of marine litter (entanglement and ingestion). Yet only in 2022 did nations agree to develop a legally binding global treaty on plastics. Final treaty negotiations concluded in 2025. Implementing this will take decades to achieve measurable effects. Meanwhile, plastic production continues to increase.

Ozone layer depletion: In 1976, the National Academies of Science confirmed the negative effects of chlorofluorocarbons on stratospheric ozone. A decade later, researchers reported a hole in the ozone layer over Antarctica. Nations adopted the Montreal Protocol in 1987 yet required a further 20 years for every country to sign up. By 2021, around 99% of ozone-depleting substances had been phased out but these substances will remain in the atmosphere for decades. The Antarctic ozone hole is not expected to close until the 2060s.

Short-termism is embedded throughout investment processes. For example, classical financial theory, which claims information facilitates price discovery and reduces risks, has influenced practices like the frequency of financial reporting. Short reporting cycles persist even though there have been concerns about reporting costs—both financial and the distraction it creates from strategy—and research suggesting assumptions about reporting frequency and prices lack empirical support. Alternative finance theories emphasising longer-term thinking andconsiderations beyond finance have also not yet disrupted the belief that frequent reporting is necessary. It is so entrenched that some companies report financial performance quarterly even when not legally required.

Research also shows how leadership (board chairs, CEOs and CFO) tenure and turnover may hinder improvements in long-term sustainability. Short-termism is also baked into legislation, regulations, organisational guidelines and finance and management education as ‘best practices’ like:

• mandates between asset owners and managers are typically set for three to five-year terms. While often renewed, the short time frame influences what asset managers pay attention to and do in in practice.
• annual individual performance assessment processes, such as those for investment managers, often tied to financial metrics.

Markets have also developed that further reinforce short-termism. Functions like auditing, assurance and data services, with revenue models dependent on maintaining and reinforcing short-term horizons, are now well established.

Implications for practice

Moving from a technical understanding of stewardship to one grounded in complex systems thinking can help stewardship make a more meaningful contribution to real-world outcomes. Recognising how intermediation fragments accountability and how temporal norms constrain strategic thinking represents essential first steps.

The third and final article introduces systems-informed stewardship and three shifts that can help move towards more effective stewardship.