Rethinking Investment Through System-Level Finance

Background

For decades, institutional investing has rested on a core assumption: that markets, when left alone, efficiently allocate capital. Traditional finance focuses on firm- and portfolio-level analysis, assessing risks and returns in isolation. However, as environmental and social crises accelerate, this siloed approach faces increasing scrutiny. Challenges such as climate change, financial instability, and inequality are not isolated risks but interconnected forces shaping global markets.

This has spurred interest in system-level investing, which argues that investors have both the capacity and responsibility to shape broader market structures. Unlike ESG integration, which confines itself to firm-specific risk mitigation, system-level investing demands a more fundamental shift—one that redefines fiduciary duty, risk assessment, and engagement strategies. It raises crucial questions: Can institutional investors balance financial returns with long-term systemic stability? And how do governance structures need to evolve to accommodate this approach?

Applying System-Level Investing

While system-level investing challenges conventional finance, its application remains uncertain. My Sustainable Investing Research Consulting project steps into this gap, refining methodologies that embed systemic risk mitigation into portfolio governance. Rather than treating sustainability as an add-on, it seeks to shift capital allocation toward resilience, long-term financial stability, and structural change in markets.

Operating at the intersection of sustainable finance and institutional investment, our project collaborates with asset managers, policymakers, and financial institutions to embed systemic risk into decision-making. Beyond advocating for ESG, it questions whether current governance models can reconcile financial and environmental imperatives. In a volatile, evolving regulatory landscape, it challenges investors to move beyond firm-level analysis and shape broader market structures.

This project places me within these debates, demanding me to use both technical expertise in investment governance and a critical perspective on capital markets. 

Laying the Foundation for Our Research

At this stage, my team and I are structuring our research approach, outlining key deliverables, and refining the scope of our work. Our core objective is to explore how investment governance frameworks can integrate systemic risks without compromising financial performance. While system-level investing is gaining traction in theoretical discourse, its practical implementation remains a challenge. As we delve deeper, we anticipate uncovering additional themes beyond our initial focus, ensuring our analysis remains both rigorous and adaptable.                                                         

I am tasked at present with conducting preliminary research, laying the groundwork for our study by identifying key themes and mapping relevant case studies. Owing to system-level investing nature, my focus is on an understanding of how investment governance structures have historically met systemic risk and where weaknesses would be. I am exploring broad patterns in investor decision-making and governance structures, considering how financial objectives and risk mitigation strategies interact. As we progress, I anticipate refining this focus, ensuring our research remains adaptable and responsive to emerging insights.

Team Collaboration and Research Strategy

A focus in these early stages has been optimizing our research workflow for efficiency and adaptability. We have broken down the development of our 20-page report and accompanying presentation into structured, manageable tasks, which currently include preliminary research, consultations with last year’s team, industry interviews, literature review, benchmarking, and case study formation. Recognizing that additional tasks may emerge, we have also allocated buffer time to accommodate unforeseen needs, ensuring smooth coordination without disrupting our timeline.

We have been intentional in prioritizing tasks to maximize impact and efficiency. While we have not adhered to a rigid framework, our approach aligns with priority-importance principles, allowing us to dedicate more time to critical tasks and complete them earlier in the process. This method has also shaped our interview strategy, ensuring that we engage with investment professionals whose expertise can provide the most valuable insights. Given the global nature of our research, scheduling across time zones has required careful coordination, reinforcing the importance of structured yet adaptable communication.

Anticipation, Challenges, and Expectations

While our research is still in its formative stage, the intellectual depth of system-level investing has already prompted critical reflection. Unlike traditional ESG reporting, which centers on firm-specific disclosures, system-level investing demands a macro-level approach that questions market-wide mechanisms. The challenge is balancing financial materiality with long-term sustainability, a reason that many institutional investors remain hesitant to navigate, which in turn limits real-world adoption of system-level investing. This lack of concrete case studies makes it initially difficult for us to fully grasp the concept of system-level investing and how to address it in practice.

Navigating this complexity, we have actively sought clarity through client meetings, extending discussions to double their planned time to probe theoretical ambiguities. Engaging directly with professionals immersed in these ideas has been the most effective way to grasp their nuances. We intend to continue employing this strategy, as I believe that insights from industry practitioners provide very valuable insights to connect theory and practice. Therefore, we plan to arrange interviews, including with the founder of system-level investing, to directly explore the rationale, challenges, and practical applications of this evolving framework.

At the same time, I acknowledge the limitations of my perspective. Without direct investor experience, I may not fully internalize the urgency or rationale behind reshaping sustainable finance at a systemic level. Yet, this very limitation has driven me to independently explore the field, delving into additional readings and research beyond our project scope. The more I explore system-level investing, the clearer its necessity becomes, yet its practical execution remains elusive. This tension is, in itself, a valuable realization. It pushes me to bridge the gap between conceptual ambition and institutional realities, which is an exciting experience I aspire to grow as the project proceeds. To refine our governance analysis, I intend to integrate insights from investor interviews, critically assessing whether current investment structures can accommodate systemic risks or necessitate fundamental redesign. Additionally, I aim to explore how regulatory frameworks shape the feasibility of system-level investing

Final Thoughts

System-level investing presents a compelling vision, yet its execution is constrained by entrenched financial structures. This project is as much about understanding constraints as it is about identifying possibilities. The adoption of System-level investing hinges on incremental shifts rather than sweeping transformations. I find myself drawn to the nuances on how subtle adjustments in governance, incentives, or engagement strategies might create ripple effects within existing structures. Therefore, rather than focusing on theoretical paradigms, I want to examine the micro-adjustments that signal movement, from the way investors adjust to new risks to the small regulatory nudges that reshape market behavior. These details, often overlooked in high-level discourse, may hold the most practical lessons for sustainable finance’s evolution.