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Climate change is driving system-wide financial risks that could undermine long-term returns across entire portfolios unless investors expand their stewardship approach beyond individual companies, according to new research from the Investor Group on Climate Change (IGCC).
The report, Systems Stewardship: Managing Interconnected Climate Risks for Lasting Value, developed with the Institute for Sustainable Futures (UTS), reveals that addressing climate-related risks requires interconnected action across entire markets, sectors and economies — from grid constraints and supply-chain pressures to technology bottlenecks and policy uncertainty.
Interviews with leading Australian and New Zealand investors exposed widespread recognition that traditional engagement and stock-picking alone cannot address these risks, which increasingly threaten beta (market) performance and long-term portfolio stability.
Dr Donna Lopata, Corporate Engagement Manager at IGCC, said investors are already grappling with climate impacts that sit outside direct company control.
“Investors are seeing that complex and interdependent climate risks require systemic stewardship. When policy settings, infrastructure or supply chains fail to keep pace with the transition, it affects entire portfolios. Managing these exposures is part of prudent, long-term investing.”
The report finds that many of the barriers slowing real-economy decarbonisation lie in external systems — including public policy design, market rules, , early-stage technology readiness, and value-chain alignment. These system-level factors ultimately determine whether companies — and investors — can meet their transition commitments.
“Investor success in company engagement means that on some issues, companies have reached the limits of what they can achieve through individual decarbonisation efforts alone,” Lopata said. “In those instances, a step change to cross-company issue-based, collaboration is needed to build on this progress. Investors have a role in shaping the wider conditions that enable decarbonisation and ensure long-term value.”
The research highlights a growing shift toward sector, thematic, value chain and policy advocacy in collaborative engagement approaches. However, practice remains uneven across the industry, with many investors calling for clearer frameworks to guide system-level engagement.
The report sets out practical steps for investors, including strengthening governance and cross-team coordination, updating stewardship policies to reflect system-wide issues, and increasing collaboration with policymakers and peers to address structural barriers.
Lopata said systems stewardship is firmly grounded in fiduciary duty.
“Investors are responsible for managing material risks to long-term returns. As climate impacts become more complex and more costly, influencing the systems that determine transition outcomes is essential to protecting beneficiaries’ savings.”
The report is available now on the IGCC website.
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