From Governance Design to Institutional Practice: Reflecting on System-Level Investing and the Path Forward

1. Re-entering the Context: Systemic Risk as a Governance Imperative

System-level investing (SLI) has emerged in recent years as a critical evolution of sustainable and responsible investing -- one that moves beyond security-level ESG integration to address the systemic foundations of long-term portfolio risk and societal resilience. At its core, system-level investing is the practice of intentionally influencing the health, stability, and sustainability of the broader systems: environmental, financial, social, and political inter alia on which economic value creation depends. It recognises that no investor, regardless of strategy or size, is immune to the externalities produced by failing systems. While traditional sustainable investing often focuses on risk-adjusted returns or firm-level ESG data, system-level investing acknowledges that true portfolio resilience can only be achieved if the systems in which those portfolios are embedded remain robust, equitable, and intact.

Unlike mainstream ESG investing, which is often backward-looking and compliance-driven, system-level investing is forward-looking and structurally proactive. It is premised on the idea that investors not only react to systemic risks but shape them through public policy engagement with policymakers, multi-sector stewardship, investment in critical infrastructure, and the institutionalisation of governance mechanisms that internalise systemic impacts.

Our consulting project was situated at the cutting edge of this movement. The objective was not merely to endorse SLI as a concept, but to rigorously examine its institutionalisation through governance: specifically, whether and how investors should adopt System-Level Investment Committees (SLICs) as formal vehicles for operationalizing system-level thinking. In doing so, our work explored the broader question: What does it take to move system-level investing from theory to practice, conceptual aspiration to institutional accountability?

2. The Process and Early Insights

A foundational insight emerged early: no universal structure fits all institutional investors. Our first analytical task was to question the very necessity of SLICs. Should system-level oversight be embedded in traditional investment committees? Outsourced to advisory firms? Delegated to cross-functional task forces? Each option reflects a different theory of change regarding how investment governance should evolve and how internal decision-making should be reshaped to account for external systemic pressures.

To refine our understanding, we engaged directly with a wide spectrum of institutional actors, including private equity firms, family offices, pension funds, foundations, and investment consultancies. Through structured interviews and comparative research, one insight quickly became clear: the term system-level investing itself is still contested. While there is growing consensus around its urgency, its operational definition varies widely across institutions. Some respondents equated SLI with advanced ESG integration; others viewed it as a form of catalytic investing or public-private alignment. A few remained skeptical, questioning whether investment governance could meaningfully address such macro-level concerns in markets still governed by short-term benchmarks, where performance remains narrowly defined.

These differences were not merely semantic. They reflected genuine variation in how institutions perceive their roles, obligations, and capacities. For instance, large pension funds expressed interest in embedding system-level goals into fiduciary strategies but faced internal challenges aligning these goals with legal mandates and performance benchmarks. Meanwhile, family offices often saw SLI as aligned with legacy or mission-driven investing but lacked the internal infrastructure to formalise it into governance protocols.

Our client’s role in this landscape was therefore twofold: to develop a compelling, modular framework for SLICs that could meet diverse institutional needs, and to act as a strategic guide for organisations still defining their journey into system-level investing. Rather than prescribing a one-size-fits-all model, I suggested our research emphasised institutional readiness: the idea that SLI adoption must be calibrated to each fund’s stage of development, strategic priorities, and internal governance culture.

This led us to conceptualise SLICs not as rigid templates, but as configurable governance instruments -- structures that must be tailored to institutional context, governance maturity, and strategic ambition. A SLIC is not a destination in itself, but a scaffold: a governance vehicle that supports the progressive institutionalisation of system-level investing.

For early-stage, nascent, adopters, particularly those just beginning to engage with system-level thinking, a SLIC might serve as a learning and strategic alignment forum. Its primary function would be educational and catalytic, bringing together representatives from investment, risk, legal, and sustainability teams to build a shared language around systemic risk and explore its relevance to their organization’s mandate. These committees may initially meet quarterly, serve in an advisory capacity, and focus on exploratory scenario planning, benchmarking against peers, and identifying pilot opportunities where system-level considerations could inform engagement or capital allocation. In such contexts, the SLIC becomes a safe space to test assumptions, surface organisational blind spots, and cultivate internal champions who can later scale implementation.

As institutions (with capacity) mature in their understanding of system-level risks (and in their operational capacity to manage them) SLICs can evolve into fully empowered governance bodies (demonstrated here) – our focus. 

In such settings, especially for family offices or foundations with limited internal bandwidth, the optimal governance model may not be a standalone SLIC. Instead, an integrated investment committee (IC) that expands its remit to periodically review systemic risks, or a lightly formalised advisory group, may be most effective. Alternatively, outsourced SLICs, facilitated by trusted investment consultants or external sustainability experts, can provide capacity without requiring full internal institutionalisation.

In contrast, in high-capacity institutions (e.g. pension funds, sovereign wealth funds, diversified asset managers) SLICs may mature into standing governance bodies with decision-making authority. These committees, reporting to the CIO or board, could shape investment policy, oversee cross-portfolio initiatives, and steer capital toward systemic objectives (e.g. climate resilience, digital infrastructure, equitable labour transitions). In these cases, a SLIC would be composed of senior leaders across investment functions, alongside specialists in risk, data science, and policy engagement. It would likely convene more frequently, monthly or even biweekly, and integrate real-time data analytics, horizon scanning tools, and feedback loops from stewardship and proxy voting outcomes. Critically, its role would not be limited to risk assessment but, as argued above, would extend to capital deployment strategy: identifying investable themes aligned with systemic stability, evaluating co-investment opportunities with other mission-aligned funds, and recommending strategic divestments from assets that perpetuate systemic harms.

Moreover, in a high-capacity institution, a SLIC could become the internal anchor for implementing external sustainability disclosure mandates, translating abstract reporting obligations into investment-relevant strategies. It might coordinate across compliance, reporting, and product teams to ensure that the disclosures issued under ISSB or CSRD are not only accurate, but actionable—reinforcing systemic awareness throughout the investment process.

In between these poles, mid-sized asset owners or consultants may adopt hybrid models: integrating system-level considerations into their primary investment committee while establishing a working group or rotating subcommittee that engages more deeply with cross-cutting systemic risks on a project or annual basis. These structures preserve flexibility while enabling focused attention on emergent or high-priority issues such as biodiversity, AI governance, or just transition imperatives.

This duality (between education and empowerment, between early-stage forums and strategic command centers) reflects the adaptive potential of SLICs. They are not fixed entities, but governance pathways. Their value lies in their ability to evolve alongside the institution they serve, anchoring system-level awareness at every phase of that evolution. As institutions confront an increasingly complex and unstable world, such adaptive governance will not be a luxury - it will be a necessity.

By centering flexibility and client adaptability, our project underscores a fundamental truth about system-level investing: it is as much about organisational change management as it is about financial theory. Building effective governance for systemic outcomes requires sensitivity to institutional heterogeneity, clarity of purpose, and above all, the capacity to translate long-term interdependence into short-term accountability.

3. Intellectual Evolution: From Conceptual Frameworks to Governance Architecture

The intellectual case for system-level investing stems from a critique of modern portfolio theory (MPT) and the risk-return orthodoxy that dominates financial management. MPT assumes that risk is diversifiable and exogenous; it rarely accounts for risks generated within the system itself (be it climate collapse, political instability, or degraded social cohesion). SLI, by contrast, demands that investors internalise these systemic risks and recognise that no diversification strategy can fully hedge against a failing world. SLI reframes the investor’s role: not merely as allocator of capital within markets, but as a steward of the market conditions themselves.

SLICs operationalise this insight. They reorient governance from firm-level analysis to macro-level system stewardship. This reorientation has profound implications for institutional governance. It compels investors to take responsibility not only for the composition of their portfolios but for the conditions under which those portfolios operate. SLICs function as governance mechanisms to operationalise this insight, shifting attention from micro-level firm analysis to macro-level system stewardship.

Throughout our research, we sought to understand how abstract concepts like "systemic materiality" and "collective fiduciary duty" could be translated into daily governance practice. Our work was grounded in existing literature but oriented toward practical implementation, examining how investment committees can evolve to better identify, assess, and act on cross-cutting systemic risks. While anchored in academic literature, our project focused on implementation: how committees can surface, prioritise, and act on systemic exposures

4. Strategic Tensions and Real-World Constraints

Despite growing interest, institutionalizing SLI governance faces substantial barriers. 

The first challenge lies in narrative strategy: how to frame system-level investing and SLICs in ways that avoid the polarising backlash often directed at ESG-related initiatives. In jurisdictions where ESG has become politically charged, system-level governance must be positioned as a tool for risk management and market resilience, not as a vehicle for ideological agendas.

A second challenge is institutional inertia. Many organisations lack the incentive structures or internal champions necessary to drive governance transformation. Even among those that support the idea of SLICs, questions remain about authority, accountability, and alignment with existing structures. Should SLICs be advisory, with influence but no power? Or decision-making bodies with capital allocation authority? Should they report to the board, the CIO, or operate autonomously? Governance transformation demands not only conceptual buy-in, but structural alignment: clear authority, reporting lines, and mandates.

Complicating these issues is the absence of standardized metrics for system-level outcomes. Without measurable KPIs, it is difficult for institutions to evaluate SLIC effectiveness, justify resource allocation, or defend the initiative internally. This gap limits the scalability of SLICs and underscores the need for continued experimentation, disclosure alignment, and academic-industry collaboration.

5. Toward a Future Governance Paradigm

Looking ahead, SLICs can play a critical role not just within institutions, but across them: SLICs could become a keystone of future investment governance. Their evolution may mirror that of other governance innovations that began as niche and voluntary but grew into industry-wide standards. Over time, a federated network of SLICs could emerge: sharing data, coordinating scenarios, aligning on climate risk thresholds, and forming a macroprudential safety net for capital markets.

In parallel, SLICs may also become instrumental in implementing international disclosure requirements. As international standards (ISSB, CSRD, SEC climate rules) proliferate, institutions will need governance bodies capable of interpreting and acting on complex, forward-looking data. SLICs could bridge this gap, translating disclosures into actionable investment mandates. SLICs are well-positioned to play this role by serving as both content creators and stewards of disclosed risks.

Yet these developments will only succeed if supported by education, regulatory flexibility, and tools for inter-institutional benchmarking. SLICs are not a silver bullet, but they are a necessary step in closing the gap between systemic awareness and investor action.

6. Conclusion: Governance Innovation as Systemic Strategy

The journey toward institutionalising system-level investing is ultimately a journey toward modernising fiduciary responsibility, in my opinion. By embedding governance frameworks that align with the interdependent nature of 21st-century risks, investors can better fulfil their mandate: not just to generate returns, but to steward capital in ways that preserve the systems upon which all value depends. To fulfil their mandates in a world shaped by polycrisis and interdependence, investors must govern for the health of the systems in which they operate.

SLICs offer a governance innovation tailored to this moment. They are governance innovations capable of advancing systemic goals without abandoning financial discipline. If implemented wisely, they can become the connective tissue between financial actors, sustainability frameworks, and the real economy -- ensuring that investment capital is deployed not just efficiently, but ethically, responsibly, and resiliently. As the investing world confronts rising complexity, governance structures like SLICs can help re-anchor finance to its foundational purpose: enabling shared prosperity through resilient, inclusive systems.