Executive Summary

Systems stewardship is defined as an evolution of traditional stewardship that expands focus beyond individual companies to the interconnected systems underpinning investment outcomes. This report, commissioned by the Investor Group on Climate Change (IGCC), argues that addressing complex, system-level risks like climate change requires systems thinking. It asserts that systems stewardship is not just compatible with fiduciary duty but essential to fulfilling it and delivering stable, long-term market returns. The research highlights two primary responsibilities for investors: allocating capital for long-term economic, societal, and environmental good, and safeguarding financial stability by addressing system-level risk.

About the research and report

The research landscape includes 103 IGCC members across Australia and New Zealand, representing over A$4 trillion in local assets under management. The analysis draws on a literature review, a survey of 20 asset owner and asset manager members, and eight follow-up interviews. The findings provide a snapshot of current practice among investors actively engaged in systems stewardship. IGCC aims to achieve a climate-resilient economy on track by 2030 and net zero emissions by 2050.

Understanding systems stewardship

Systems thinking provides tools for addressing complexity by considering the overall system as well as its individual parts. It aims to understand root causes and potential impacts through feedback loops and leverage points. System-level risks, such as climate change and biodiversity loss, affect entire economies and cannot be mitigated through divestment or portfolio diversification. Such risks are particularly material for universal owners, such as superannuation and sovereign wealth funds, due to their long-term market exposure. While traditional stewardship often falls short when policy is not supportive or market failures persist, systems stewardship focuses on long-term outcomes at an economy-wide scale to protect the ‘beta’ level returns of the financial market.

Systems stewardship practice in Australia

The study found that 85% of surveyed investors incorporate systems thinking into their stewardship activities. Key system-level risks identified as material threats include climate change, human rights, biodiversity loss, resource depletion, and social inequality. While 75% of investors include these risks in their investor belief statements, incentive structures remain a laggard; no respondents currently align compensation with system-level risk management. Collaboration is the most common lever, with 90% of investors engaging in alliances such as Climate Action 100+. Policy advocacy is also widespread, with 100% of participants engaging in climate-related real economy policy and sustainability disclosure requirements.

Engagement across sectors and value chains is emerging, with initiatives like the Investor Mining and Tailings Safety Initiative (IMTSI) and the Steel Purchaser Framework demonstrating the potential for collective action. In terms of asset owner and asset manager alignment, 90% of surveyed asset owners partially delegate systems stewardship to their managers. However, there is pushback when additional clauses are added to mandates, and formal accountability remains limited. Challenges to progress are significant, with the top barriers identified as resource constraints (78%), regulatory uncertainty (67%), and short-term performance pressures (61%). Additionally, 50% of respondents cited difficulty in measuring and monitoring system-level risk.

Recommendations

The report provides six key recommendations to strengthen practice. First, investors should enhance collaborative engagement by focusing on clear goals, strong governance, and adequate resourcing. Second, regulators are urged to clarify guidance to provide certainty, including reviewing Regulatory Guide 128 on collective action and modernising the interpretation of fiduciary duty and the Best Financial Interest Duty (BFID). Third, the investor community should align language, incentives, and metrics. This includes codeveloping a shared vocabulary and linking remuneration to long-term outcomes. Fourth, organisations should foster a culture of systems stewardship by embedding practice across all levels, from trustees to analysts. Fifth, sector-wide capacity should be built by strengthening systems thinking literacy and identifying leverage points for systemic interventions. Finally, asset owners should signal expectations through mandates to support goal alignment and strengthen manager accountability.

Conclusion

Systems stewardship is gaining traction among global investors as a key method for managing systemic risks and driving long-term, risk-adjusted returns. Although implementation is currently uneven and in the early stages of maturity, it is deemed necessary to protect portfolio value in a changing world. By enhancing collaboration, clarifying regulations, and building internal capacity, investors can position the financial sector as a force for resilient and sustainable futures.