Systems Stewardship: Managing Interconnected Climate Risks for Lasting Value

Today’s economic, environmental and social challenges are deeply interconnected. Climate change and biodiversity loss are examples of complex, system-level risks with economy-wide impacts. Addressing these risks requires systems thinking.

All sectors have a role in responding to the climate crisis. For investors seeking risk-adjusted returns, the dual responsibility is clear:

• allocating capital for long-term economic, societal and environmental good
• safeguarding financial stability and protecting the economy by addressing system-level risk.

Systems stewardship is not just compatible with fiduciary duty — it is essential to fulfilling it and delivering stable, long-term market returns.

This study, commissioned by the Investor Group on Climate Change (IGCC) and conducted by the UTS Institute of Sustainable Futures (ISF), examines how Australian investors are applying systems stewardship in practice.

Systems stewardship defined:

System stewardship is an evolution of traditional stewardship. It expands the focus beyond individual companies to the interconnected systems that underpin investment outcomes. Grounded in systems thinking, it highlights interrelationships, feedback loops and leverage points that shape long-term value creation.

By focusing on long-term, economy-wide outcomes, systems stewardship helps protect the stability of financial market returns and the societal and environmental systems on which those returns depend.

Our study involved:

• literature review of global frameworks and practices
• survey of IGCC asset owner and asset manager members (20 responses, around one-third of relevant membership)
• eight follow-up interviews for deeper insights.

Key findings:

• systems stewardship is growing, but implementation varies and faces barriers
• collaboration remains the dominant lever
• sector and value chain engagement is emerging
• asset owner and asset manager alignment is strengthening
• company engagement is evolving
• top challenges include resource constraints, regulatory uncertainty, short-term performance pressures.

Recommendations:

1. enhance collaborative engagement to amplify impact
2. clarify regulatory guidance to provide certainty
3. align language, incentives and metrics to assess and reward outcomes
4. foster a culture of systems stewardship to embed practice
5. build sector-wide capacity to drive change
6. signal expectations through mandates to support goal alignment.