Readers of this newsletter know we believe investors should encourage companies to eschew practices that damage critical systems. This is just common sense: most investors are diversified, so that the value of their portfolios rises and falls with the health of the economy over the long term. Working to end company practices that are systemically harmful protects both portfolios and the larger economy.
That’s system stewardship in a nutshell. While the concept is simple, it runs counter to ideas that are deeply entrenched in business and finance. Practicing system stewardship means changing the way we measure success in business, which is no small task. The current paradigm measures investment success against financial benchmarks, asking whether a company or portfolio did as well financially as comparable companies or portfolios. This mode of measurement ignores companies’ external impact on the economy and markets.
In stark contrast, system stewardship requires investors to account for companies’ macroeconomic impact: neither a company nor a portfolio manager who own its securities can be considered entirely successful stewards if the company’s practices undermine the systems that support the economy and financial markets overall. That’s a big change, but while new, system stewardship remains a financially oriented theory of investing, not a political agenda.
That last point is critical, because investors who raise systemic concerns are often dismissed as political activists in disguise. This accusation sometimes takes the form of a claim that progressives who couldn’t get their way at the ballot box are now circumventing a democratic political outcome. This misunderstanding is partially rooted in the fact that financial objectives often overlap with ideas that also have political implications, such as climate change and racial justice. But the convergence of investor interest and macroeconomic concerns doesn’t reflect political partisanship. It just means investment performance and the global economy are closely intertwined: investors share an interest with society in a healthy, resilient economy.
But there’s another reason system stewardship is wrongly conflated with politics: companies that profit from threatening our shared prosperity actively use the claim to deflect attention from the financial harm they’re inflicting on their own investors. Politicians supported by fossil fuel companies, for example, accuse those companies’ owners of interfering in politics when the companies’ shareholders use their ownership rights to protect their financial interests from systemic harm. But that isn’t political gamesmanship: it’s capitalism.
Rather than usurping politics, system stewardship uses investors’ tools to solve a difficult issue. In fact, considering a topic such as climate change from the perspective of a long-term investor can help address partisan deadlock by using a common language—financial returns and economic value—to discuss contentious questions. Investors aren’t primarily concerned whether an issue reflects “liberal” or “conservative,” values; instead, the financial question is whether a corporate practice that impacts on society or the environment presents a material risk to portfolio performance.
When rising temperatures threaten global food systems and GDP projections, when low wages dampen consumer demand, or when weakened public institutions invite instability, there’s an economic and financial price. Each of these issues has proved politically contentious, but if investors believe a fair, environmentally sustainable economy will boost investment returns over the long term, then it’s their prerogative as investors to use their capital to fund such an economy. And as discussed in the next section, that fits the purpose of a market-based economy.
A Market, Not Political, Imperative
A related argument against system stewardship is that it interferes with markets, which allocate resources to their best use by using profits as a proxy for efficiency. But system stewardship doesn’t reject markets—it enhances them. When markets only measure financial success at the company-specific level, they fail to account for the impact companies have on critical systems and the myriad other companies embedded in those systems. By empowering investors to account for those impacts in their decisions as owners, system stewardship makes markets better and more accurate, benefiting everyone.
Importantly, investors have financial tools to engage on these issues that are not available in the political sphere. They can direct their capital to specific uses, vote proxies, file shareholder proposals, and demand greater corporate accountability as owners. These tactics aren’t available in politics, but they’re standard features of financial markets that empower capital providers to direct the application of their capital. That’s why efforts to sideline investors as stewards are so dangerous, as we discussed in a prior newsletter.
To be clear, system stewardship is not about micromanaging business decisions. It’s about setting baseline expectations: don’t erode public institutions; don’t exploit labor in ways that threaten economic resilience; don’t pollute the commons just to inflate earnings. Such guardrails can ensure that companies support, rather than sabotage, system-wide prosperity.
A Nonpartisan Path Forward
Investors should reject the false binary that says a social or environmental issue is either a financial markets question or a political one. As long as we continue to rely on markets to allocate resources across the global economy, we should encourage these markets to account for as much information as they practically can, and that’s what system stewardship does. Where markets fail, politics of course must step in. But better to structure markets not to fail in the first place: guardrails are grounded in a simple and conservative principle: protect the systems that protect your portfolio.
System stewardship is neither left nor right. It’s not a political power grab. It’s an investor-centered response to the recognition that what’s good for one company’s bottom line may be disastrous for the broader economy—and for the portfolios built upon it. Rather than vilifying investors who act on this insight, we should welcome a future where shareholders serve not only as capital providers, but also as responsible stewards of the systems upon which their investments depend.
