SYSTEM-LEVEL INVESTING:

IN practice

System-level investing reflects a growing recognition among asset owners and managers that while diversified portfolios are largely insulated from company-specific volatility, many of the most material risks to long-term returns—such as climate change, public health failures, and inequality—cannot be diversified away.

Because diversified investors are financially tied to overall market performance, breakdowns in these foundational systems can trigger broad-based losses, dragging down portfolio value across virtually all holdings.

Investors aiming to protect the value of their diversified portfolios from such losses can do so by seeking to limit activities of companies that threaten systems through system-level investing or system stewardship.

The Shareholder Commons tracks these activities in Portfolios on the Ballot and Beyond the Ballot.

portfolios on the Ballot

Flagging shareholder engagements that feature macroeconomic and portfolio risk arguments going to a vote of shareholders.

Beyond the Ballot

Highlighting systems-level initiatives that extend beyond shareholder proposals, vote-no campaigns, and proxy voting.

leading organizations

As system stewardship matures and leaders innovate and operationalize its principles, organizations themselves evolve in scope, capacity, and influence. The perspectives below reflect how leading organizations are interpreting, advancing, and embedding the idea of system-level investing into their practices.

Charities and Universities Networks

“For universal owners, therefore, risk is not just considered at an asset level, but also in terms of the risks to wider financial and economic stability. While Modern Portfolio Theory always assumes a riskfree investment opportunity is available, universal owners recognise that investors are unlikely to be able to ‘stock pick’ their way out of large-scale economic turbulence – and the emphasis should therefore be on reducing these wider economic risks. Investors should be ‘fighting climate change not just managing climate risk.’”

Charities Responsible Investment Network (CRIN) and Responsible Investment Network – Universities (RINU), Universal Ownership – a guide for charity and university asset owners. September 2025.

Asset Owners

“Investors can establish parameters that define the boundaries within which companies must operate to protect the value of diversified portfolios. Such ‘guardrails,’ unlike traditional ESG standards, are established with the goal of maximizing overall economic value, rather than focusing on individual company profits.”

Universal Ownership – Systems Thinking for Asset Owners. AP7, Sjunde AP-fonden (Seventh AP Fund), September 2025.

Nonprofit Organizations

 

“… investors must treat climate change not just as a risk to individual companies, but as a threat to the entire economy and long-term portfolio returns. That kind of risk cannot be avoided just by trading assets or holding climate-friendly firms. Because market-wide climate damage comes from rising global emissions, the only way to reduce that risk is to reduce real-world emissions. That requires a strategic shift in investor behavior—from managing companyspecific risk exposure to proactively mitigating systemic risk.”

The Long Term Will Be Decided Now: Why Climate Risk Demands System-Level Action from Investors, Sierra Club, June 2025

Asset Owners

“The Role of Asset Owners

Addressing systemic risks requires collaborative, cross-industry approaches between investors, companies, regulators, policymakers, and wider stakeholders for comprehensive whole-of-economy resilience. No single actor can address systemic risks effectively.

However, asset managers, constrained by shortterm performance metrics, may lack sufficient incentives to lead on systemic risks. Asset owners, particularly those with favourable existing processes (such as a policy/advocacy/public affairs team, or a supportive Trustee) are best positioned to lead within the investment chain due to their long-term investment horizons and fiduciary obligations to beneficiaries.”

Systemic Risks: A Framework for Portfolio Resistance, Scottish Widows and UKSIF, 2025

legal professionals

 

“Climate change, nature loss and other sustainability factors are directly relevant for investor fiduciary duties. Based on a review of 11 jurisdictions including the UK and the US, the 2021 seminal A Legal Framework for Impact (the ‘LFI Report’) found that investors are not only permitted but, in cases where system-wide risks can have a material financial impact on investment objectives, are required to consider system-wide risks and opportunities associated with climate change and nature loss in their investment decision-making. If there are steps that an investor could reasonably take to mitigate material portfolio-level risks, they ought to take those steps.”

Sustainable Fiduciary Duty: The Report, Net Zero Lawyers Alliance, 2025

background Information

FAQs and other info on macroeconomic and portfolio value risk

FREQUENTLY ASKED QUESTIONS

Why Diversified Shareholders Should Consider Portfolio-Level Impacts

Modern investing requires diversification to allow savers to earn the high returns available from risky assets (such as common stock), while diversifying away the idiosyncratic risk that would accompany concentration in one company or sector.

However, research indicates that “more than 75 percent of the variability in the return to an investor is caused by systematic risk – that is, some combination of beta [overall market return] and of how much exposure an investor has to that beta.” This diversification means the most important factor determining investment returns over the long term will be the return of the market, rather than whether any particular company in a portfolio does better or worse than the market. In turn, the performance of the economy itself broadly impacts long-term market performance.

Diversified investors considering sustainability questions should prioritize the broad effects of company actions. Investors should ask, “How will the company action in question affect my overall return from the market?” because overall returns are what allow investors to meet their financial goals and liabilities. Often, the answer to this question is the same as the company action that will optimize its returns.

For some sustainability questions, however, the interests of individual companies are not aligned with their diversified shareholders’ interests in optimizing overall returns. It is not always the case that a company action promoting its own returns is also best for portfolio returns. Strategies that maximize cash flow for a company but that also externalize costs onto social or environmental systems may threaten the systems that support the economy upon which diversified portfolios depend.

This cost externalization can undermine the value of the macroeconomy.

Shareholders can and should engage companies and vote proxies in their own interests (or the interests of their beneficiaries), even when those interests conflict with individual company interests. Neither law nor commercial reality should constrain shareholder stewardship or advocacy designed to preserve or enhance a portfolio’s long-term value: if a portfolio company creates social or environmental costs that threaten diversified investors’ overall portfolio returns, they should be able to use stewardship and other tools to oppose such behavior, even if doing so could reduce enterprise value at an individual company.

What does it mean to vote on a "systems-level basis"?

Systems-level voting recognizes that overall market return is the most important factor in the financial performance of a diversified portfolio, and that market returns depend upon the systems that support the economy. For a deeper dive into the financial rationale for systems-first voting, read TSC’s System-Level Invsting background page or watch this short video prepared by friends of TSC at Cambridge University, who use the term “universal ownership” to describe the same perspective.

How are Portfolios on the Ballot and Beyond the Ballot different from other resources?

Portfolios on the Ballot and Beyond the Ballot highlight campaigns supported by the rationale of protecting or improving the systems that support the economy, thereby enhancing the financial performance of diversified portfolio.

Does POTB include recommendations?

We believe that investors are best served if their proxy votes account for systemic impact; however, TSC does not make voting recommendations. TSC is not a proxy advisor, law firm, or investment advisor, and POTB does not constitute proxy advisory services, legal advice, or investment advice.

What should I do if I have a systems-level proposal that isn’t included in POTB?

Let us know! We will be updating POTB throughout the proxy season and Beyond the Ballot year-round. Even if your proposal does not mention a diversified shareholder perspective, it can be included in POTB if supplemental materials supporting the proposal include portfolio-impact reasoning.

Does POTB include all the current shareholder initiatives with systemic implications?

No. In many cases, investors propose shareholder action that have important systemic implications, but only make the case that the initiative will increase value at the company where the vote takes place. One purpose of Portfolios on the Ballot and Beyond the Ballot is to demonstrate the efficacy of the systems-level argument to the investor community, and to encourage proxy voters to account for systemic concerns when voting on any matter, even if the supporting materials do not specifically reference portfolio effects.

Do any proxy voting services use POTB data?

We are aware of one commercial service—iconik—that now allows investors to use a list of items that are flagged in Portfolios on the Ballot. Iconik is a proxy voting platform that helps investors analyze their managers’ voting choices and build customized voting policies.

What next steps can I take?

There are several ways to add systems-first perspective to your proxy voting:

  • Sign up for our periodic updates, allowing you to focus on pending meetings
  • Put system-level investing into practice using our tool Making the Case: Macroeconomic Risk & Portfolio Impact, a Tool for System-Level Investors
  • Update your proxy voting guidelines with language that reflects the importance of systemic impacts
  • Make sure your advisors, including asset managers, proxy advisors, and consultants, are aware of your concern with the systemic impact of companies’ practices
  • Ask TSC to meet with colleagues or help you shape a systems-first argument for your own engagements
  • You may also be able to enlist a service provider to use POTB to vote your shares

Together, we can fundamentally transform our financial system.  Get involved today.